Caroline Dredge is a wealth manager at GlobalEye in Abu Dhabi.
Although planning for the future is vital for our financial well-being, Ms Dredge says almost everybody experiences financial difficulties at some stage in their lives, either through losing their jobs, investments gone wrong or living beyond their means. The best way to handle these life challenges, she advises, is to try to be prepared.
What are some of the reasons people face losing their life savings?
Typically, it is quite often a life event. You often find people coming out here, to the UAE, after a divorce or something like that. They have gotten to a certain stage in their life where money has had to be split both ways, including their home. It is people in their 40s and 50s. That's one reason why people don't have too much behind them. Other reasons are too much fast living, bad investment decisions, debt and high expenses. You have to regroup and start afresh on a much lower level than before.
Do you think the stigma of experiencing financial difficulties prevents people from seeking help?
That is definitely true; in any country, really. Often, the reaction is: "How did you get yourself into that kind of trouble?" Some countries are better equipped to handle that with various channels for people to seek help. In the UAE, if you go to the bank, you need somebody to understand you.
Is it possible to recover financially if you have lost it all?
I think so. You could live for now or you could go the other way. For many people who come here later in life, their key aim is to save as much as they can over time because they are not going to work forever. With a proper structured plan, a willingness to save a lot of your income and tightening the belt a bit, you can accumulate money quite quickly here if you put your mind to it.
How would you do that?
I would start by looking at end goals. Where are you trying to get to? You have to make provisions to pay the debts and save "rainy-day" money. You have to make the end goal realistic. If somebody is starting late, or having to restart for whatever reason, then it is about finding a way to make the end goal achievable. Once you have a plan and start taking the first steps, it is quite a relief for people. You also need to be flexible, do regular reviews with your adviser and possibly readjust.
What if you were close to retirement age and lost it all? How would you recover?
For a lot of people at this stage, it would be very difficult. Their expectations have to change about where they are going to live, what they are going to do and how they are going to do it. If you come from a country with a good welfare system, that is an option. But they also have to take a more entrepreneurial attitude to come up with other ways to bring in an income. In my experience, people may choose to live in a cheaper country, live with family or have another back-up system. There is a general lack of appreciation of just how much money you need to retire on now.
Are there any steps you could take to prevent a personal financial crisis?
You should never overextend yourself and have your safety nets in place. It is OK to take a risk on something, but you must make sure you have three to six months' salary or expenditure in the bank, where it is safe and accessible. This is your buffer. Before you make an investment, do the sensible things first. Check the liquidity of everything you are investing in, check what it is that you are getting into and, if it's not very liquid, make sure all your eggs are not in the one basket. Don't follow the crowd. Take second opinions, ask advice and keep it sensible. You have to be really careful.