Should An Australian Expat in the UAE Setup An Emergency Fund?
Should An Australian Expat in the UAE Setup An Emergency Fund? – Recently we wrote about how to structure yourself financially as an Australian expat in the UAE and spoke of the ‘3 pots’ principal of managing your money – the expenses pot, emergency pot and investment pot.
A few weeks ago we wrote a follow up specifically on the ‘Expenses Pot’ and how an Australian expat in the UAE should manage their expenses.
As described, there is no right of survivor-ship in the UAE meaning assets are not passed to the surviving spouse. Instead, assets of a deceased person will be distributed as per sharia law which favours male relatives. Additionally, local accounts may be frozen if you are called to a court order or change employers.
In today’s blog we will talk more about the “Emergency Pot” specifically.
The Emergency Pot
Keep enough but not too much
As we described in our previous Blog post, we recommend keeping a maximum amount of funds in the UAE that equates to 1.5 months of your expenses due to issues mentioned above. Anything over and above 1.5 months expenses should then be moved OUTSIDE the UAE to your ‘emergency pot’.
Calculating your emergency pot
As we explained previously, if your monthly expenses are AED20,000 then keep AED30,000 in your local UAE account (1.5 months expenses). Anything above that amount should be put into your emergency pot. We recommend keeping up to 3 month’s salary in this account. So if your salary each month is AED30,000 then this would be AED90,000.
Given your emergency pot will provide you little to no return, anything above AED90,000 in this example, should be invested to achieve growth and to ‘inflation-proof’ your wealth.
Emergency Pot Options
Australian expats may use the following options to place their emergency funds:
- Establishing an Offshore bank account
- Existing Australian Account
- Mortgage offset account
- Cash Based ETF’s
Establishing an Offshore Bank Account
There are more than 300 offshore accounts for UAE residents to choose from, according to the money comparison site Souqalmal.com.
These typically offer 24/7 phone and internet service and multi-currency accounts across a range of currencies including GBP, Euro, USD and the Australian Dollar to name a few.
To mitigate currency risk you should establish the account in the currency you will most likely spend it in. For most Australian expats who have moved overseas for a few years then more than likely this will be in AUD.
Providers that are currently offering AUD accounts that we are aware of include:
- Standard Bank in Isle of Man – AUD$6,000 account minimum
- ADCB Offshore – AUD$25,000 account minimum. *Can still be frozen subject to a UAE court order
- SwissQuote in Switzerland – No account minimum
Using An Existing Australian Account
Alternatively you may use your Australian bank account as your emergency pot, however if you do send money back to Australia, ensure you have a justifiable reason as to why you are doing so. e.g setting up an investment account, sending money back for a mortgage repayment etc.
Issues typically arise when you send regular surplus funds back to Australia and leave these amounts sitting in a bank account. This behavior may present an opportunity for the regulators to question your behaviors (one of the tests for non-residency) and in turn your residency status.
Mortgage offset account
A mortgage offset account is an excellent option for your emergency funds, as the capital is not subjected to market risk just like the current account options above, meanwhile it also effectively provides you an ‘investment return’ from the interest repayment saved on your mortgage.
The ‘return’ is effectively the same as the interest rate. For Australian expats who are currently making a negative net rental return on their investment property, that is, the rent they receive is less the interest repayment, then keeping your emergency funds in a mortgage offset will reduce or eliminate the negative deficit.
Ordinarily if you were a tax resident in Australia, a negative return is a tax effective strategy as it helps lower your assessable income and hence your tax payable. However, as an Australian expat, it is unlikely you will have any other income to deduct this loss from and you will continue to accrue tax credits.
For the more adventurous of heart, you may wish to invest these funds to obtain growth, particularly if you don’t have a mortgage offset account to utilize.
It’s important that you try to avoid market risk with your Emergency Fund however, as it’s there to protect you and your family in the event of an unexpected event, such as a job loss or health concern, thus something lower risk like a cash-based Exchange Traded Fund (ETF), may be an option.
This may improve the overall returns on your cash held, but it’s important to do your research here and ensure that you’re not taking on unnecessary additional risk.
So Should An Australian Expat in the UAE Setup An Emergency Fund?
We’re taught from an early age that its always good to put money away for a rainy day and as you can see an Australian expat in the UAE has even more reason to do so.
Setting up an emergency fund isn’t hard, you just need to dedicate the time to do it. Why don’t you add it to your new year resolutions for 2019 and take control of your finances.
General advice warning. The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.