Expatriates in the UAE should be ready for an emergency. One step you can take is to build up to six months' salary in an offshore account for fast access rather than keeping your savings entirely in a local bank.
Coping with financial crisis
You never know when you will find yourself in the middle of a financial emergency as thousands of UAE-based expatriates caught in the wake of the global crisis can testify.
If you fall ill, have an accident, lose your job or suffer any crisis that threatens your income, you could suddenly find yourself unable to service your debts, and that means big trouble.
The Emirates can sometimes be an unforgiving place to run into money worries. Writing a cheque that bounces is still a criminal offence for expats though many banks will try to work with a customer to solve any financial shortfalls.
When emergency strikes, however, you need backup. So what should you do?
Everybody should have a financial cushion in case something goes wrong, says Richard Taylor of UKTaxDubai.com and a chartered financial planner with PIC Middle East. "But it is particularly important for UAE-based expats, due to the speed at which your situation can change here."
Many financial advisers recommend keeping between three to six months' salary in an instant access account, that you can get your hands on in a hurry.
That remains good advice, but thanks to record low interest rates, this strategy has a downside, Mr Taylor says. "Any money sitting in a cash account is essentially wasting away, because its value is falling in real terms after inflation. You have to strike a balance between security and getting a return on your money. There is no longer any right or wrong amount to save, it depends on how much you need to feel comfortable."
There is no question where you should keep the money. "This must be in a proper offshore jurisdiction such as the Channel Islands, Isle of Man or Switzerland, rather than in your home country, where it will be subject to local tax," says Mr Taylor.
He believes leaving cash in a home nation can be less of a worry than parking it in the Emirates. "Money held in UAE bank accounts can be frozen if you lose a job or die. If your bank gets notified that you've lost your job, they may take the final salary once its deposited in your current account to clear any outstanding debt, leaving you without enough cash to survive," Mr Taylor says.
Keeping most of your money offshore is an easy way to get around this problem.
Krysia Januszewski, a 33-year-old British expatriate, has lived and worked in Dubai for more than three years, long enough to learn the value of a financial safety net. "I have built up a pot of money that I can access from anywhere in the world, at any time, in case of emergencies," she says.
Ms Januszewski, who works as an executive assistant for a media agency in Dubai, keeps the equivalent of two months' salary in an offshore savings account with Lloyds TSB in the Isle of Man [a self-governing British crown dependency]. I also have a couple of weeks' salary sitting in a UK bank account, just in case."
She does, however, keep some money in a UAE bank, but only to cover everyday expenses. "I wouldn't build a large pot of savings in the UAE, because I don't trust the banks here. They are more likely to freeze your account in an emergency than help you out."
Ms Januszewski's reticence about local banks could be misplaced. During the global credit crisis, the UAE was one of only a few nations globally that guaranteed domestic banks and their deposits in an effort to alleviate the fallout.
For that reason it might be wise for expats to keep some of their savings in a domestic account to ensure it is easily accessible.
Ms Januszewski also has long-term pension savings on top of her rainy day fund. "I hope I never have to dip into those, I'm planning to keep them until I finally retire," she adds.
While Ms Januzsewski has thought out a backup plan, many expats do not.
Four out of 10 UAE residents save less than 10 per cent of their monthly income according to a survey this year by the price-comparison website Souqalmal.com. And half of those polled claimed they did not save anything at all.
If you run into debt and you haven't got a pot of emergency money, you need to take control of your finances quickly, says Rupert Connor, an independent financial adviser in Dubai.
"The first step is hardest - admitting you have a debt problem. Once you've done that, sort out exactly what you owe, and to whom. List your debts in order of importance. Priority debts include your mortgage and secured loans, because serious action can be taken against you if you don't pay what you owe. You could lose your home, be disconnected from a service or even go to prison," he adds.
Lower priority debts include overdrafts, store cards and money borrowed from family or friends. "You can't ignore these, but you don't need to deal with them immediately," Mr Connor says.
The next step is to run through all your income and expenses, to see where you can save money, and work out how much you can afford to repay to creditors. "Put a timescale on clearing your debts, to give you a specific target. Then find ways of rebuilding your wealth, to create a secure financial future for your family."
Building a war chest isn't the only thing you should be doing to protect against emergencies, you should also look to take out insurance, Mr Connor adds. "A sound financial security plan should also protect your loved ones against death or disability, so they can keep paying the bills even if something happens to you."
The first step is to work out how much income your family will need if you die or are too ill to work. "How much will it cost to maintain your lifestyle, service your debts, and maintain your pension payments? Don't forget that inflation will reduce the value of this income, so you are likely to need more cover than you think," Mr Connor says.
A good way to protect your dependents is to buy a life insurance policy combined with another type of protection called critical illness cover, says Chris Ferguson, managing director of Guardian Life Management in the UAE. "This pays a cash lump sum if you suffer a serious illness such as cancer, heart attack or stroke. This combined cover may be more affordable than you think."
If you bought cover before moving over here, ask your insurer if the policy still applies in the UAE, otherwise you could be simply wasting your money. "You can arrange a policy from your home country, just make sure you can claim on it if you fall ill while resident in the UAE."
You can take out life and critical illness policies in a variety of currencies, depending on where you finally plan to settle.
Expats living and working in the UAE are lucky to have access to good health care, but it is expensive, and that means private medical insurance is a must.
While all employers supply health cover in Abu Dhabi, Dubai is still preparing a law to make health insurance mandatory in the emirate, although many expats already have it through their employer. "If you do have a company-funded policy, you should check it carefully, to make sure it provides the right level of cover. Medicine is expensive in the UAE, and major operations or treatment can be very costly," Mr Ferguson warns.
Financial emergencies can take many shapes or forms. But with a bit of careful preparation and hard saving, you should be prepared for most of them.