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I made this episode in 2022, had been sitting on it for about a year, until I finally had the courage to publish this for you. Whether you're in your car, on a walk, at the gym, or doing your chores, I have one promise to be genuine and help you with your finances. Enjoy listening to the episode of the Dubai Finance Podcast.
Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this. This is a quote by Dave Ramsey the acclaimed personal finance guru. I couldn’t agree more with the same.
Today’s episode is dedicated to Personal Finance, our focus is to understand the different Savings and Investment Avenues in the UAE.
Ladies and gentlemen, my fellow listeners, it’s my privilege to be your host from Dubai. My name is Divesh, and I welcome you to episode 2 of the Dubai Finance Podcast.
SavingsIn the last episode, we touched upon the importance of tracking expenses, making a budget and allocating savings first towards a contingency fund and later towards investments. Today we dive a little deeper.
In personal finance, there’s a rule called the 50/30/20 rule. You shouldn’t have to be spending more than 50% of your income towards Essentials like, Food, Clothing, Housing, Education for kids, if you do, you’re actually living beyond your means. Next, Wants include lifestyle choice related spends like Streaming Services, Dining out, Gaming expenses. These should not exceed 30%. Finally, the remaining 20% of income should cover your Debt repayments and Savings. You must try to save at least 10% of your monthly income and keep debt repayments preferably lower than 10%.
To help you along in your journey, I have a Free Personal Finance and IPO Cheat sheet that I like to use and highly recommend on my website, that’s free for you to use as a signup bonus. Check it out at dubaifinancepodcast.com.
Now, contingency funds are used at the time of emergencies, that’s why they’re also called emergency funds interchangeably. The key requirement is, ease of access to withdraw funds with little to no volatility of the amount that is saved. Savings Banks on average offer between the range of 0.1% to 2% at present. The higher rates provided by Banks in most cases have higher minimum balance requirements. Alright, Savings Accounts are a good way to keep your contingency funds stashed at arm’s length, and without lying idle. When it comes to deciding which bank, you need to consider to open a Savings Account, I would say there are three key requirements, firstly the Bank should be stable and a financially sound institution. You don’t want to have to sweat over whether a Bank will go Bankrupt and money will be locked in. It’s happened before during the 2008 recession, there were 25 banks that failed in the US as per a Fed report. In the UAE, we have Banks like CitiBank, or HSBC or Standard Chartered to name a few of the largest International Banks with strong financials, being publicly traded, you can download and review their financials to see how they stack up and then there are Local Banks, like ADCB and Emirates NBD. Depending on your preference, you could go either international or local. In my experience, local banks are good in terms of Customer service towards Retail customers like you and me, while International Banks are more focussed on Large Businesses and HNIs, hence their customer service may not be the greatest for individuals.
Among local banks, look for those that have a majority holding by either the Government directly or by an Investment Company led by a government such as Dubai or Abu Dhabi. As an example, I can tell you Emirates NBD has 55.76% holding by the Investment Corporation of Dubai, which is the Sovereign Wealth fund of the Govt. of Dubai. This information is publicly available on DFM’s site, you can access the Show Notes for the links and references (DFM, n.d.). (Investment Corporation of Dubai Wikipedia, n.d.).
Secondly, figure out the Interest Rates offered and the Minimum Balance or Salary transfer requirements to find out which Bank is preferable. You can do this analysis by viewing a comparison site like PolicyBazaar.com and perform a search. Lastly, find out the quality of Customer Service, go over Google Reviews, App Reviews and Word of Mouth experiences of friends and family.
Alright, ever had that feeling that your money in the bank doesn’t stack up with your expenses? Or you expected to have saved a bit more? You’re not alone, we’ve all been there, multiple times, a big culprit here is Inflation. Inflation acts as a silent intruder in our lives, steadily raising our cost of living, and shrinking our Savings.
If we look at the data on Inflation in the UAE in the second quarter of 2022 on Trading Economics (Economics, 2022), it stands at 6.77%, up from 3.43% in Q1. While this may sound high, it is lower than the Global Average of 8.8% in 2022 as posted by the International Monetary Fund or IMF.
In this way, it’s possible to actually lose money, if most of your savings are stashed away in a Savings account, worse still in a Current account. Once contingency funds are covered, the next step should be towards building a pool of investments in different asset classes. It’s okay to start small, but it pays to be systematic and regular.
I’ve learnt the hard way, having squandered money buying useless things out of a whim, and hoarding it only to question myself later, what was the point of it all? We’re all human, and it’s easy to fall prey to FOMO and excessive consumerism. It’s best done in moderation, while trying to find ways to add to your income through wise investments. Albert Einstein once said Compound Interest is the eighth wonder of the world, the one who understands it, earns it, he who doesn’t pays it. Apart from building a contingency fund for 6 months in a Savings Account, I would save another 6 months’ worth of expenses in a secondary asset class like Savings Bonds, for three reasons, one is for diversification benefit, second is possibility of better return overall, and the third reason is, 1 year worth of savings is better than 6 months to cover life’s emergencies.
In any case, it pays to have financial prudence, and discipline, to achieve this, one excellent tool I’ve used over the years is recurring deposits. This puts the process of allocating money on autopilot towards building a contingency fund. You set the terms, the amount, the term, the frequency, and voila, you are building a contingency fund, just like paying EMIs or instalments for things you bought in the past, you instead are literally paying yourself forward, while earning interest rather than paying it. Once the deposit matures, you transfer the amount saved to your savings account and only revisit contingency funds at the end of each year. Even though we haven’t covered opening recurring deposit, I would recommend opening such a deposit in the same Bank where you intend to have your Savings Account. Although nearly all Banks should provide this facility, it’s best to check with them before you open an account just to be sure.
National Bonds – SavingsWe’re nearly there in terms of contingency funds. There’s just one more item I’d like to talk about, and that’s National Bonds. They are a government owned Entity that issue savings solutions, the most common being Savings Bonds. This is a Sharia compliant product, as mentioned on their FAQs page, and it has a floating rate of return paid as Profit. Last year, Savings Bonds provided 1.5% return, which is comparable to a Premium Savings Account from leading Banks. The minimum amount of investment is quite low though, this is at AED 100, which gets you 10 Certificates worth 10 Dirhams each. A word of caution, Profit earning is unlike a regular savings account, investors are incentivized to hold bonds for longer periods to avail higher rates of Profit. From what I understand, if Bonds are redeemed during a calendar year after being held over 360 days, you get 100% of Profit accrued, between 180-360 days, it comes down to 80%, for 90-180 its 60%, 0-90 it’s 40%. Overall, this is a worthy alternative to Premium Savings Accounts, with similar return or higher, and with a much lower requirement for minimum amount invested. There’s one more thing, once you own Savings Bonds, you participate in a Rewards Program. This gives you the chance to win luxury cars and cash prizes yearly. Now, I am not usually in favour of raffle draws, but when this is at zero additional cost, there’s no risk involved, so it can’t hurt.
UAE Stock Market – Overview and how to setup a Brokerage AccountThe UAE has a growing Capital market and has three Stock Exchanges currently operating within the country. These are Abu Securities Exchange or ADX, Dubai Financial Market – DFM and NASDAQ Dubai. Many prominent companies, covering a wide range of industries, such as Banks, Utilities, Real Estate are listed on ADX and DFM. Today I’d like to cover DFM for you. Let’s take a look at the market performance of its main index DFMGI. Since January 2012 to January 2022, the index has gone from a value of 2,492 to 3,329. That’s an increase of 33.6% over 10 years, including the pandemic hit years, and despite other global recession pressures, like the Ukraine conflict, otherwise performance would have been better, no question. Anyway, this increase, amounts to an annualized growth rate or CAGR of about 2.9%. To put things into perspective, let’s look at a scenario of an investor managing her savings of monthly AED 1,000. If she had kept this in a Current account, over 10 years, the amount today would come to AED 120k, that’s easy, 1000 Dirhams over 12 months over 10 years. Assuming she saved this in a regular savings account, with 0.5% average annual interest, it would total to AED 123k, not a huge difference, but 3k additional is better than nothing for sure. Next, had she invested this in the Stock market, the total would have been AED 139,641.78. That’s about 19,641 more than the current account, and 16.6k more than the Savings account, which packs quite a punch. Needless to say, in our example we have used a rather small investment value.
While it’s interesting to note the performance of the Index, there are a few questions that come to mind, what are the kinds of products and investments available on DFM? To begin with you can participate by buying stocks of listed companies. Some prominent names are EMAAR, AirArabia, DEWA, Emirates NBD, Dubai Islamic Bank, DU…… and Salik, yes that’s right, the RTA subsidiary responsible to collect your tolls on major roads, like the Sheikh Zayed road, is a company in which you can invest and possibly recover some of that toll money.
DFM as a stock exchange has three indices, these are as we touched upon previously, DFMGI which stands for DFM General Index, DFMSI, which is DFM Sharia Index and the UAEESGI which is an ESG Index. All three indices are calculated by S&P Dow Jones. Does that name sound familiar?
That’s because, it is the company responsible for calculating some of the best-known indices of today, like the S&P 500, the Dow Jones Industrial Average in the US, to name a few. Now, why is this important?
It’s important because an index represents a basket of securities to determine the Market’s true value at any given point in time. Ever hear the term beat the market? Well, the index value is THE market.
If we look at DFMGI, as of 2022 (DFM, 2022) , there are 35 companies whose weighted price determines the price of the index. The top four weighted stocks are DIB, EMAAR, DEWA and Emirates NBD all having a weight of 10% each. The latest report dated 19th December 2022 states individual weights are based on the closing price of the stocks as on 7th December 2022.
Alright, that’s enough equities and indices, here’s what more is available. DFM includes Equity Futures which are derivatives, which are complex securities whose prices are tied to an underlying asset, in layman’s terms. These can be used to trade and make gains on a short-term basis in a speculative manner, or used as a hedging tool against Equities that you already own. Personally, I tend to keep away from Derivatives, as they are quite complex and they are not best suited for gains in the long term. Instead, the next two products available on DFM are what could help as longer-term investments and these are Exchange Traded Funds or ETFs and Real Estate Investment Trusts or REITs. To simplify the definition of an ETF on Investopedia, it is a pooled investment security like a mutual fund, which tracks any given index, but unlike a mutual fund, it can be bought and sold just like a regular stock. The way an ETF Tracks an index is a technical discussion, which wouldn’t add value to our session today. Essentially, and ETF provides returns based on an Index with minimal expense, and can be used as a great asset class in your portfolio providing you the benefit of diversification even without a huge portfolio of stocks, compared to owning stocks that have high beta. For those not familiar, Beta is a measure of how volatile the price of a stock is compared to the movement in the market. By default, a Beta of 1 means, a stock basically provides mirror returns to the market. 1.5 would be high beta, compared to 0.4 being a low beta stock. This is a tool; portfolio managers use to diversify and optimize equity holdings for their clients.
Higher the risk, higher the potential for return, and conversely higher the propensity for losses as well. While no stock ever has an exact Beta of 1, an ETF would come closest. In future episodes, I will cover stocks and ETFs and REITs to understand how they perform relative to the market, as this would help us understand how such investments have performed historically relative to the market.
REITs on the other hand can be defined as companies or Trusts that own Real estate either through direct investment or by financing income generating properties. REITs come in three forms, Equity REITs which directly own real estate thus allowing participation in rental income paid out through dividends periodically or Mortgage REITs that finance Real Estate and generate Interest Income also paid out periodically through Dividends, and Hybrid REITs, these are a mix of Equity and Mortgage REITs.
Real Estate being mostly an illiquid asset is hard to own directly, hence investing indirectly through REITs provides a benefit of liquidity to the buyer. There are a few things to keep in mind though, unlike ETFs that track a given index, and have their prices adjusted to match changes in the underlying index value, REITs don’t necessarily track the price of their underlying investments. It’s rather a function of the demand and supply, that determines the price of a REIT unit. This implies, that while you may benefit through dividend earnings, that can closely resemble income earned by investing in Real Estate, you don’t necessary get the benefit of appreciation in price of the underlying assets. This sort of dilutes the attractiveness of participating in REITs for gaining in value of investment. Additionally, REITs often have high management fees associated due to the active nature of buying and leasing property unlike ETFs which passively track index values, thus requiring lower Management fees.
After hearing all this, if you’re willing to be an investor in DFM, the first thing you’ll need to do is apply for an Investor Number, the setup involves visiting the website of DFM and filling relevant details. Once you have the Investor Number setup, you will then need to open a Brokerage Account with one of the many Brokerage houses including some well-known local Banks like Emirates NBD.
IPOs in the UAELet’s take our attention to IPOs for a moment. You might be already familiar with the term IPO, or you’re hearing this for the first time. IPO stands for Initial Public Offering. Fun fact - The Dutch are credited to invent IPOs back in August 1602 when they went to the general public to raise funds for the Dutch East India Company. That’s 4 centuries ago!
Coming back to present day Dubai, several companies have been participants of IPOs in the DFM, some of these have had a lot of marketing done, and were in the news, billboards and radio recently, they were all over the city.
An IPO occurs when a non-public company, goes public. This could be a privately held company or even a government enterprise that was previously held 100% by the Govt now going public. Since late 2021, there have been a few prominent IPOs, namely DEWA and Salik. But why is this important? Should one invest in IPOs or ignore them altogether?
What are the things to consider for you the listener as an investor while planning to invest in an IPO? Let’s tackle the first question, should we invest in an IPO, what are the pros and cons. Firstly, IPO price is the price determined at the IPO process based on a company’s fundamentals. It is the price you pay to participate in an IPO, the number of shares allotted depends on whether an IPO is under or oversubscribed. E.g. if you applied for an IPO for 1000 Shares, and the IPO is undersubscribed, you will get the 1000 shares you enrolled for at the beginning. Conversely, it will be lower. Prior to participating in an IPO, the company’s fundamentals can be reviewed. This can be found in a detailed document known as the Prospectus. It is like a disclosure and marketing document aiming to attract investors to take the leap and fund the IPO.
Remember, the management’s objective is to ensure an IPO is fully subscribed, and the Prospectus although it may contain audited information, is not in itself an audited document by an unbiased third party. What this means is, there tends to management bias which can seem convincing to an untrained eye. This management bias can lead to overvaluation. This is where my cheat sheet can help you. Do check it out later on the website that’s DubaiFinancePodcast.com
It's important that the financial information is thoroughly scrutinized, and you establish a true picture of the company’s potential. This is not as daunting as it may sound, even if you don’t have a Finance and Accounting Background, you can perform simple assessments independently. When the time comes, we will review an IPO on this podcast. Your assessment will set aside the wheat from the chaff. Have you heard of any start-ups that went public on a meteoric IPO value, only to crash shortly after? It happens quite a lot in Tech stocks. In such cases, it’s better to hold on and not invest when there are Red flags identified, either wait until the price drops below the value you determined as the fair value or, don’t invest for the time being, until the market volatility subsides.
One reason for the meteoric valuation is because their investors are mostly private Equities, Venture Capitalists looking to make an exit on a high at the time the company goes public. Remember management bias in the prospectus and related IPO valuation? It’s Greed, plain and simple.
Often times, such companies have weak financial standing despite strong non-financial supporting indicators like User Engagement, Customer Retention, but at the end cash is king. You need to invest, not in Unicorns, but Cash Cows, can you imagine a Cow with a Unicorn horn? What would you call it a CowCorn, a UniCow? What a sight that would be, it’s a billion dollar plus valued startup that generates positive cash flows, and needs investment to either help increase market liquidity due to its strong fundamentals and hence attractiveness, or it’s a lean enterprise that is looking to take the next leap, think of a Bootstrapped profit generating Private company that finally goes public, because the current owners and promoters are no longer able to fund equity investments.
On the other hand, the richly funded tech stock, would now have to find its feet without direct investor funds, and many a times, such stocks take a huge beating early on, only to find their correct valuation determined by Market forces of demand and supply. This has happened to a lot of big named companies, like Facebook, Twitter, Snapchat, in the US. It will continue to happen, hence the need to stay vigilant.
So now that you have reviewed the Prospectus of the company looking to go Public, understood the financials like Assets owned, liabilities held, Working Capital, etc, it’s time to do a back of the envelope Valuation of the company. Compare your valuation of the company with its IPO price, if your value is higher, that means, in your view the company is undervalued and is a good investment. Conversely, it may be overpriced, and you shouldn’t invest your money in it.
Call to ActionLike me, if you’re fascinated by the world of investment and savings opportunities, it’s time you took that first step, whether it’s opening a new Savings Account to establish a contingency fund, or setting up an Investor Account with DFM to make investments in the local market, or to personally review an IPO, I would urge you to take that first step, the sooner the better. If you’ve found the content in this episode do apply it in your financial journey. If you haven’t found this helpful, I would request you to send in your feedback on [email protected] for me to work on your needs and help you better.
I would also urge you to leave a review on any of the listening platforms like Apple, Spotify or Google, that you’re listening to this podcast from. It helps build momentum to what I’m trying to achieve, and motivates me to serve you the listener a lot more frequently. As usual all relevant links and references are saved in the show notes for your ease of access.
ConclusionWow what a journey, this brings us to the end of episode 2, as always, if you’ve made it this far, I appreciate you. You are absolutely awesome to come along all the way to the end, and I wish you a great rest of your day, evening or night, and keep crunching those numbers. Bye.
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I made this episode in 2022, had been sitting on it for about a year, until I finally had the courage to publish this for you. Whether you're in your car, on a walk, at the gym, or doing your chores, I have one promise to be genuine and help you with your finances. Enjoy listening to the very first episode of the Dubai Finance Podcast.
Now here's the show notes:
Time is money, now that’s an age old saying. It’s a phrase that encapsulates two key resources both of which are limited, time and money. Yet, you can use your time wisely to save money, you could also use your time strategically to invest money for growth.
Conversely, it is also true that you can use money to save on time. Sadly, no amount of money can increase or grow your time, we haven’t found any keys to immortality, at least not yet.
Ladies and gentlemen, my fellow listeners, from the golden sand dunes that capture the imagination, to the modern architectural marvels, it’s my privilege to be your host from Dubai. My name is Divesh, and I welcome you to episode 1 of the Dubai Finance Podcast.
Who I am, what is this podcast, why is it relevant to the listenerIn today’s episode, I am here to tell you about a story, my story so far, and my motivation to start a Finance podcast. I started my journey as a young professional in the city of Bangalore in 2011, this was the year I had qualified as a CA. I had landed my first job with a Big Four audit firm, and I was pretty excited about the career that was ahead of me. It was my first time living independently, I never had to bother about rent before, or the costs of transportation, credit cards, electricity bills or anything.
Responsibilities were upon me, and me alone. To make matters complicated, I was about to get my partner in crime, my marriage was scheduled in less than 1 years’ time. Despite learning about Finance and Accounting for the 10 years before, managing my own income and expenses felt like a different ball game. I needed to make sure that I didn’t run out of money and had surplus available.
At this point, I had learnt a valuable lesson, that we need to count our expenses and have money set aside for contingencies, and life events. I had picked up a tool which is the monthly expense review. It was something I had learnt about, now put into practice with the help of an Excel Sheet.
As time flew by, I eventually got married, our family income was higher than what I did individually, but our living expenses were higher too. In any case, things were looking better financially. Up until we were with blessed with our first child, that’s when my wife had to take a break from employment post her pregnancy, this meant we had only a single income and our expenses had increased with the birth of our son. I am sure this is a familiar scenario, a lot of us have been through or are going through.
Luckily, I had my old tool the monthly expense review and budget to our rescue. This helped us stay disciplined, and plan our expenses at a challenging time. As Benjamin Franklin had famously said, a penny saved is a penny earned. It certainly does work in the modern world.
In a few years’ time, we had moved to Mumbai, and I had the idea to quit my job, and be self-employed. I had been moonlighting as a freelancer online apart from my regular job for a few months, and things began to look promising. So, I took the plunge and tried to take each day as a challenge, no longer having the perks of a monthly salary. The CEO of my ex-employer had shared a famous saying in the business world and it goes like this. Sales is Vanity, Profit is Sanity and Cash is King. The essence of this saying is the emphasis on having Positive Cash Flows. No matter what the business is, whether it’s a startup, a family run enterprise, a Multinational, the importance of generating cash flows cannot be ignored.
Personally, I began to realize the importance of cash flows as a business owner, not just staying profitable. I had to ensure I met expenses which needed to be paid timely, while at the same time, I had to ensure fledgling enterprise had to comply with local laws and regulations, that included taxes. This continued for a while, until I moved to Dubai, and landed a job with one of the leading Utilities in the region, the year was 2016.
Fast forward six years to today, I work as a Regional Finance Manager for a multinational company, and I am hungry to learn more about finance, specifically Personal Finance, as this will help me individually to reach my goals, and Business Finance, so that I can add real value to the organizations I work for. At the same time, this podcast is equally meant for you the listener, I would hope that you find the content on this podcast valuable enough, that you could apply things you’ve learnt into your lives and your businesses. I plan on achieving these goals by researching material and producing curated content relevant to Dubai and the Middle East as well as inviting guests who are experts in their fields and who can add a lot of value. So you can sit back, relax and I’ll have you covered.
For this episode, I’ve broken it down into two segments that I wish to cover on an ongoing basis in this podcast. In the first segment, I will talk about Personal Finance in Dubai, and then move on to Business Finance in the second
Finance in Dubai Personal Finance Savings and Investments – Dubai, India, USDubai is a unique city in many ways, there’s no personal income tax as of today, which is a huge attraction for people to move in, higher salaries than many regions in the world, but expenses can be high too. Despite the challenges faced, there are ways in which we can effectively manage our finances. Given its location, and lower barriers to transmitting foreign exchange there are ample opportunities to access global markets even as individuals. This gives a level of freedom, but it can also be quite daunting, when you’re unsure about what needs to be done.
The aim for every household should be to cover contingencies due to either loss of job or downturn of business. While there are varied views on what should be the minimum amount saved up for contingency, it’s advisable to have at least 6 months’ worth of monthly expenses stashed as a contingency fund. This fund should preferably be in a Saving’s Account. While interest rates in the region low, the plan for a contingency fund is that you never want to have to use it, but if and when there’s a need, you have at least 6 months covered for. I’d even recommend 12 months if you can, but 6 months is a bare minimum.
To give you a teaser, this is a topic we will cover in episode two.
Often times people don’t opt for a Saving’s Account in the UAE, due to the low rates of interest, and requirement for a minimum balance.
Personally, I like earning a little interest than no interest. There are however, banks that offer up to 2% interest or profit rates, in case of Islamic Banking, which is definitely better than your funds remaining stagnant in a current account or as cash in hand. Another possible avenue for savings would be National Bonds, they tend to offer comparable or slightly higher rates of return than Premium Savings banks accounts, paid through profits or earnings.
While contingency funds are meant to cover unforeseen circumstances in the short term, when it comes to fulfilling life goals, long term investments are the best answer. So, what’s the difference between investing and saving? Saving means, you set aside money that you intentionally don’t spend so that you can use the money saved up at a later date. In the case of savings, you look at interest rates for comparison with different banks, as well as their financial standing to decide on where to shore up your cash. Investing on the other hand is building an asset portfolio, that pays in passive earnings, like dividend, rents and realized profits from increase in value of the investment.
Investments that are held long term take the advantage of compounding, they sometimes have a lock in period such as mutual funds, corporate bonds, and can be illiquid such as real estate, or even liquid like stocks and ETFs. With the proliferation of the internet, we also have newer concepts through Cryptocurrencies, however, it’s still a bit like the wild wild west, and it’s still in my view in its early days. The technology has its pros and cons, but it can’t be ignored, I am sure we will have episodes dedicated to it in the future. There’re also physically valuable assets like metals such as Gold that have been used as a traditional reserve of wealth for centuries and generally being a depleting natural resource, the intrinsic value of gold should increase on demand and supply principles. Needless to say, I’ll have you covered, we will go over each of these avenues at length in this podcast multiple times over and assess what works well over a period of time.
When based in Dubai, if you’re like me, an expat, we are also in a position to invest as non-resident citizens of our home countries, again be it in real estate or in the stock market. We can also access mature markets like the US. Moreover, if your home country is a growing economy, chances are that you will also gain by way of home country currency depreciation versus the USD. As an example, in 2016, 1 USD was hovering around 67 Rupees, while at the end of December 2022, it was a shade under 83 rupees, which is an increase by 24% and Annualized Increase of 3.4%. So if someone did nothing but kept a 1000 dollars with them in 2016, and sold it in December last year, they would have earned 16,077 Rupees on an initial amount of 1000 dollars which was close to 67000. This return would be even higher, had it been put to work through an investment in the US markets, such as the S&P 500 which has an annualized return rate of 7%. But, that’s a topic for another episode.
Planning retirementIt pays to manage money. In an era where social media platforms like Tiktok or Streaming platforms like Netflix and the like target our pleasure centers providing instant gratification, it really pays in the long term through delayed gratification. I’ve got nothing against these platforms, in fact if they show promising growth stories, as many of them do, I would be inclined to analyse their financials, do my research and possible invest in them, if they’re publicly listed companies.
Coming back to planning retirement, this is only possible if we are wise with our money. As we continue with the daily grind, it’s easy to overlook the need to plan for a future, when income may be scarce, and possibly no longer through a job or a vocation or a business. This is where, making prudent choices when we do have the time, focusing on delayed gratification and developing financial discipline makes a world of a difference. If we start the habit of investing in our 20s instead of 40s, the gains can be stunningly different, that’s the magic of compounding. Time can be an ally or an enemy, it all depends on how we use it to our advantage. While planning a retirement, ideally there should be a stream of passive income through rent or interest or dividends to meet some, if not all our future needs, else we would be depleting our reserves leading to an uncertain and unfriendly outcome.
To achieve this a mix of interest-bearing assets like bonds, dividend paying stocks / ETFs and real estate that generates rental income are few traditional and time-tested ways that work. We will dive into each of these asset classes in later episodes but today we are laying the foundation, which is to build up a habit to pay yourself in the future while managing your current expenses and having a healthy risk appetite.
Children’s education, managing household budgetApart from Retirement, if you have kids, you know that education can be expensive. Moreso in the case of higher education. Thus, planning children’s education expenses in the future is an important topic. Luckily, like retirement planning, the principles remain the same. Although, since this is an important topic, financial institutions like banks, insurance companies alike cater to this specific need through tailor made products. It makes sense to study these in addition to what we can achieve by other direct investments like stocks, ETFs and Real Estate.
Buying a houseNext, buying a house is a dream for most people. Buying one in Dubai today, is a wonderful possibility today, given the recent changes in visa regulations, making the market attractive to international buyers and Residents alike. There are a few things to consider here. These range from finding the best deals for mortgage in the market, weighing your options like buying property in your home country versus in the UAE or in Dubai in particular, understanding your objective with the real estate investment, that is whether you plan it for your own end use or purely to generate rental income. Needless to say, you don’t need to worry about tax implications in the UAE, as there are no income taxes, but you will need to do your legwork when it comes to your home country.
One thing for sure is, buying a house, is like laying down an anchor in some ways, that is, being an illiquid asset, you will need to have some sort of a presence either in person or through an agency to take care of the property all year-round. Today, we have alternative avenues to gain some of the benefits of owning a house without having to take out a loan. I am talking about fractional ownership, or investing through Real Estate Investment Trusts (abbreviated as REITs) there are several startups in Dubai for example, that are doing this, and my hope is to have conversations with people closer to this market on our show in the near future.
Business FinanceNow that we’ve covered areas that we will look to explore, dive deep for personal finance, it’s time to pay attention to the business side of things. Let’s move onto Segment two.
Raising CapitalAs a business owner, one of the challenges you may face either early on or at a time of business expansion is raising capital, should you go the equity route or look for borrowing money? What about going public or staying private? What are the things one needs to consider while taking a bank loan, is it just the rate of interest, should it be fixed or floating? What are the pros and cons. These are some of the things that come to mind. There are solutions for any challenges in this matter, but there certainly is no one size fits all solution. The one thing common is finding the right balance between exercising control and having debt, while ensuring you have the lowest cost of capital. Now you may already be familiar with these financial terms, if not, don’t sweat, as I’ve said before, we’ll have this covered.
Trade FinanceLet’s bring our attention now to Trade Finance. You have your capital resolved, there are regular customers, orders are being executed by your team, and things are going well, except for one fact. Collections are an issue, customers are reluctant to pay on time, there are newer customers, you are not familiar with, and have an understanding of their financial standing or risk for going bankrupt. In turn you face a cash crunch, turnover maybe good, as are profits, but somehow, you don’t see the money yet. Markets like waves, have their ups and downs, one of these down drafts takes out your customer, who turns bankrupt, now you’re in a fix. Luckily there are a lot ways to manage such risks, there are innovative solutions or products provided by Banks, Insurance companies and NBFCs alike to cover these risks. To name a few, there are Letters of Credit or LCs, Bank Guarantees, Working Capital loans and Trade Credit Insurance. These required detailed discussions of their own, but that’s for another day.
Compliance – Tax laws, BankruptcySince 2018, we have had the start of taxation through VAT in the UAE. It has helped the Govt generate non-oil revenue, and has required businesses to maintain compliance through filing returns, paying Output VAT and claiming Input VAT. Since then, there have been several other laws enacted, such as the Economic Substance Regulations, Anti Money Laundering law. The most recent but significant change though is Corporate Tax implementation. Once laws are enacted, changes occur, and the need to stay up to date increases, here’s where we need to use services of professionals. In this podcast, we will invite such professionals and go over important regulatory changes, understand their nuances and help you and your business to stay one step ahead of the curve.
InsuranceAnother topic I’d like to cover for you is insurance. Uncertainties in business are everywhere, and where there’s risk, there’s insurance. If your business is involved in transporting material between countries, there’s a requirement to have insurance cover for such transit of the goods, subject to incoterms and transfer of title. If you own goods and stock them in a warehouse, the goods need to be insured against fire loss or other natural causes. Next, there are certain insurance requirements that maybe mandated by the law, or to remain benchmarked in the market such as health insurance for employees. We will explore what are the necessary things that need to be considered while entering into an insurance policy and what are the potential risks that need to be covered.
Accounting for small businessesMoving on, Accounting as you know, is the language of business; it is a systematic method to record economic transactions while maintaining principles that are generally accepted. Maintaining accurate books of accounts is vital and, in many instances, it is mandatory to do so. Life and business can be complicated, and as such maintaining accurate books of accounts can be a tedious and expensive undertaking. Today however, there are a plethora of cloud-based solutions and ERPs that help simplify the process, and with a bit of understanding the basics, it’s possible to manage accounting relatively easily or even have it outsourced. QuickBooks, Xero and Tally are a few names that come to mind, when it comes to accounting software that’s both affordable, customizable and easy to use. Yet, these are solutions for small to medium sized enterprises. For larger companies, there are ERPs such as SAP and Oracle that are commonly used in the industry. Having proper books of accounts is validated through an Audit. Having a set of audited financial statements helps a business stay transparent and relevant to borrowers as well as potential buyers. If you’re in a position or you’re looking to buy a business, one of the things you will need to do, is Financial Due Diligence, which requires valuing a business. An audited set of books of accounts is the main starting point.
Business Setup, RestructuringOkay, on to our final topic. Here’s a common scenario, you’re in the shower, you meditate and poof, an idea pops into your head, you make a mental note of it, as the idea is a good one, a viable business plan is needed though. So, you get to work, you make that business plan, a financial forecast, you seem set, except, you don’t know yet how to setup a company in the UAE. Should it be based in the mainland, how to do this along with a job as a side hustle, but done legally? What about setup costs, visas and other unforeseen requirements? Or, you could already be an established company, but you’re looking at ways to manage your taxes effectively. There are a lot of intricacies in Business Setup and Restructuring that needs to be considered. Again, I’ve got you covered in this department too like all the other discussions.
ConclusionIf you’ve made this far, you are totally awesome, and I thank you for being awesome. What we’ve covered today gives you a gist of the laundry list that I have in mind for this podcast and that is quite exciting. Starting with next episode, we will deep dive into these topics one at a time. Once again, thanks for listening and I will catch you in the next episode. Until then, have a great rest of your day, evening or night, and keep crunching those numbers. Bye.
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