Don’t get caught up in the romance.
We’re lucky to enjoy a lifestyle in the UAE that pales in comparison to other UK/US expatriate locations while we may have our daily challenges we also enjoy endless sunshine, no HMRC/IRS breathing down our necks, and a lifestyle that would cost much more were we living in London or New York City. Very heady, very seductive.
However, we must not forget that living the high life is not the same as being Wealthy. If you spend your income, you are not saving or building wealth — you are just spending. You may feel “rich”, but you are just living the UAE lifestyle, it’s very easy to be seduced, no matter your background.
Wealth is what you build up over time. It’s not what you earn and it isn’t measured by having a lovely lifestyle. We can brunch like the best of them, drive the best cars, go to the latest fashionable hangout. We do not want to have a “boring” life, especially when we see all our friends partying as if it was 1999 (apologies, couldn’t resist that reference).
There are somethings we can control in life, somethings we have a modicum of control and somethings we can’t control.
We can control spending vs savings. We have some control over earnings and how long we work. We have no control over taxation and market returns.
But who wants to live like a hermit in the meantime? Well, the future will most likely give us plenty of time in retirement, time to reflect on our past and this will either be a comfortable reflection or anxious regret.
Comfortable reflection in retirement means the folks that were being a bit frugal while they were earning the money. Regret covers the ones that enjoyed spending the income, but have not saved sufficiently to cover their retirement needs.
I am likely a lot older than most, if I suddenly had to leave Dubai I would by many standards enjoy a comfortable retirement. This came about by my upbringing. My parents never had debt, it was extremely difficult to borrow money way back then.
Although we never had a lot of money, I never had to worry about being fed or clothed. They never taught be about how to manage money, I just saw how we lived. When I went into the brave world at the age of 16, I ate basic food, economising to pay bills and putting off buying the new pair of shoes. If we had Starbucks latte at that time. I’m sure I would have skipped that as well. So saving is actually pretty easy for me, it’s the way I’ve been brought up and the way I continue to live my life.
But it’s never to late to press the “reset” button or to start to change your attitude, even in small bits. When you begin to live like this then it becomes much easier to save, you can either spend now or save and be much closer to that desired standard of life during retirement.
If you want to have this comfortable life style or even being able to retire early, then the solution is to not only earn as much as possible, but more importantly, to save as much as possible.
And once you change this mindset, the rest is easy.
Here is what you need to make that comfortable retirement: “the magic power of compound interest”. In simple terms, it’s when the earnings or interest is added to your original investment. This in turn generates even greater earnings or interest, and as it grows the growth gets faster.
For example, say you decide at the age of 21 to save for only 14 years £12,000 p.a. at 7% p.a. You then stopped saving and enjoyed life, not saving a dime from age 33. By the time you are 65 and assuming you have a compound annual growth of 7% , you would have saved £168,000 and your investment would have grown to £2,380,000 .
Say instead you start saving at 35 and save for 30 years at £ 12,000 p.a. at 7% per year. You will have saved £360,000 and your investment would have grown to £1,176,000. Despite saving £360,000 vs £168,000 in the earlier example, you would still have less than half compared to the person who saved for less and for half the time you saved. The key is early (and often).
That is the power of compounding and time.
Basically, my advice is to spend frugally and invest the rest. We may not be able to control the stock market, but we can make the decision between spending and saving. This is what will make a significant impact on your net worth. Trust me on this one, savings is a lot safer than trying something dramatic with investments later in life.
I do remember my very first apartment in 1983, I had just separated from my first wife, I could either buy the apartment or drive a car, I could not do both. The car would go to zero value while the investment would grow, I ditched the car, took the bus, and started with my first investment. I wish I had started when I was 21.
Oh….and I almost forgot. Insurance backed investments are very difficult for making money due to excessive fees, which eat into returns. Watch your cost when investing. (this tip came from Jamal)
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