Lifecare’s expert financial planners take you through the quick fixes and pitfalls to consider if you’ve suddenly lost your job
Hundreds of millions of jobs have been terminated across the globe as a direct result of COVID-19, so you are certainly not alone if yours was one of them. If you hadn’t made ample provisions for redundancy, then you could currently be facing a very tough financial situation, where quick fixes are needed to cover your family’s basic costs.
Lifecare’s advice is always to channel any financial anxiety into a solid plan. Read on for our tips on the first steps to take when your salary stops.
Cash Is King
You should already know the fixed costs needed to meet your family’s basic needs, including housing, schooling, utilities, loans and insurances. Ideally, you will have saved an emergency fund to cover this amount for several months should you need it. It is important to make whatever amount you have last as long as possible: given the volatility of the international job market, you should be realistic about how long you may be without a salary.
Look to drive down your outgoings and put financial liquidity first. Curb your spending and cut any non-essentials, even the odd morning latte can add up over the course of a month. Switch or cancel mobile phone contracts, cook from scratch, and be smart with your use of petrol, water, electricity and air conditioning. Consider moving home, selling cars or other high value assets, and also leaving the UAE in the short or medium term to reduce expenditure.
Lessen Your Loans
UAE banks are being encouraged to be more flexible on loans by accommodating repayment holiday requests and providing debt consolidation solutions. The Central Bank of the UAE introduced an AED256 billion Targeted Economic Support Scheme (TESS) in March, aimed at providing temporary financial relief for cash-strapped individuals, SMEs and other private businesses affected by the pandemic.
Approach your bank, explain your current circumstances, and try to make use of these measures. Ask your employer to produce documentation that states COVID-19 as the reason for your termination. Depending on your agreement with the bank, you can renegotiate the terms of your personal finance with reduced interest payments and a longer tenure.
Your Gratuity Is Not Guaranteed
It is a common misconception by employees in the UAE that their End of Service Benefit or gratuity payment will land in their lap if and when they leave or lose their job. This is unfortunately not the case in so many situations, and it is vital to remove this figure from any immediate budget calculations you make in connection with your monthly income.
It is standard practice within UAE banks to add a clause in personal loan contracts that gives them complete authority to adjust and offset the borrower’s gratuity towards any outstanding loan, which means they are almost certain to have first dibs on your final salary payment, gratuity entitlement, payment in lieu of notice period, payment in lieu of accrued and unused leave, and any other redundancy related payments from the employer.
The current financial pressure on businesses has also inevitably led to a rise in disputes over the reason for an employee’s termination (in order to avoid certain payouts) as well as offering installment plans to pay the gratuity over an extended period.
Future Proof Your Finances
Allow this hiccup to highlight the holes in your financial structure, and lead you to a far more effective one. Cash is the basis of any financial structure, and you need to establish a replacement – and immediate – income source as protection against any future loss of income. A good benchmark for this amount is 6-12 months of your monthly outgoings. So, if you spend an average of AED20,000 on accommodation, bills, cars, travel, living, entertainment and any other expenses, you should have between AED120-240,000 in your emergency cash pot.
Lifestyle plays a huge part in budgeting. Spending everything we earn and living paycheck to paycheck is a dangerous game, which so many people are seeing the results of in 2020. Putting a plan in place early, realising that we should only have commitments to spend 70% of our monthly income, with the rest going towards short and long term savings, and adjusting our lifestyles accordingly, will always be the route to financial security.
Lifecare’s expert team of financial planners is on hand to tailor effective solutions that will safeguard your future.
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Lifecare’s Financial Head Brian Stewart, Gulf News, Financial Times, The National, Abu Dhabi Islamic Bank.