In a rush? Read this summary:
- Your financial goals change as you age and it needs to be realigned accordingly: build wealth in your 20’s, manage responsibilities in your 30’s, and prepare for your retirement needs in your 40’s and 50’s.
- Key priorities include investing early, building an emergency fund, planning for major expenses, and rebalancing your portfolio for long-term stability.
- Financial goals, priorities, and obligations evolve with personal circumstances and the broader economic landscape. It is always prudent to ensure one’s financial strategy is adaptable to changing market conditions.
Each phase of your life is characterised by shifting financial priorities. Typically, these priorities can include everything from building a firm foundation in your 20’s – securing a house and making your money work for you, to providing for your family in your 30’s, and safeguarding your future in your 40’s and 50’s.
In a nation as dynamic and opportunity-rich as the UAE, long-term financial security can be ensured with smart decisions. The earlier you align your goals with each stage of life, the better prepared you are for what comes next.
And so, we’ve put together this little guide to help you on this journey.
A roadmap to long-term wealth through financial goals
Whether you’re taking your first step into adulthood, navigating the path to settle down, or preparing to retire, your financial strategy must reflect the changes in your life at each stage to help you stay ahead of the curve.
In your 20’s: Build a strong financial foundation
Your greatest assets in your 20’s are time and the ability to take risks. At this stage in your life, newfound financial independence along with (relatively) fewer obligations means you can afford to invest in high-risk, high-return investment instruments to benefit from the power of compounding, and easily recover from any losses you may face in the long run.
With retirement decades away at this stage, small investments and prudent choices can have a lasting impact on your journey to financial independence. Therefore, this is the decade to start laying the groundwork for financial success.
Start a long-term investment plan
At this stage, investments can be used as an instrument of capital appreciation to benefit from the power of compounding, and earn a stable income alongside your monthly pay too.
It is important to remember the benefits of diversification: investing in a mix of different asset classes, balancing equity and debt across market capitalisations, sectors, and geographies. This ensures that the underperformance of any instruments in your portfolio can potentially be offset by gains from the others, ensuring your portfolio health remains in optimal condition at all times.
Build an emergency fund
An emergency fund will serve as your first line of defence against unforeseen contingencies — job loss, medical expenses arising from accidents or illnesses, home repairs, or anything else. It is a good idea to start building it up as soon as you start earning, setting aside at least 15 to 20% of your monthly income. One should build a corpus covering at least six months’ worth of essential expenses.
This fund should be readily accessible, preferably in a separate high-interest savings account or money market instrument. The goal here is not capital appreciation or a stable income, but liquidity.
Prioritise protection
Invest in insurance plans while premiums are still low in your 20’s, considering your health profile is at its best. Start with health insurance (if not already provided by your employer), gradually investing in instruments such as term life insurance and critical illness/disability insurance, offering a steady replacement for income arising from loss of employment due to serious illnesses or injuries.
In Dubai, if your health insurance expires and you fail to renew it, you will be fined AED 500 monthly. Fines for the same stand at AED 300 per month in Abu Dhabi.
Insuring yourself early reduces costs from unforeseen circumstances in the future and ensures you don’t leave your loved ones financially vulnerable.
Avoid high-interest debt
At this stage, one gains access to credit instruments for the first time — whether in the form of credit cards, personal loans, or Equated Monthly Instalments. If used and paid for responsibly, these tools can help improve one’s credit ratings. Mismanagement, however, can lead to compounding debt over time.
It is always a good idea to pay your credit card bills in full and on time to avoid mounting interest rates, and prioritise paying off the highest-interest debt (if any) first. For example, it is advisable to settle your credit card dues before repaying low-interest education loans.
Moreover, you must understand the repayment terms for any loans you may require before signing an agreement. As such, it is important to avoid short-term “quick cash” loans that often charge exorbitant interest rates that far outweigh their convenience.
Navigating major financial milestones in your 30’s
Your 30s mark a pivotal decade, marked by several major milestones such as marriage, starting a family, purchasing your first home, and more.
These milestones are also accompanied by significant financial obligations which, if managed early, can provide lasting stability and peace of mind.
Save for your home: Plan your payments strategically
In the UAE, home financing typically requires one to cover between 15% and 30% of a property’s value upfront. This is referred to as the Loan-to-Value (LTV) ratio. It expresses the loan amount a buyer requires relative to the property’s value. Simply put, it represents the percentage of a property’s value that a bank is willing to finance.
Assuming you’re looking to buy a home worth AED 1.5 million, you can expect to contribute around AED 300,000 as a down payment. Remember that this excludes additional upfront costs such as registration fees, commissions for agents, and mortgage processing fees.
Plan for your children’s education
Education is a substantial long-term expense for parents. In the UAE, private schooling can cost anywhere between AED 40,000 to AED 100,000 a year. Tuition fees can go even higher for higher education abroad, whether in the US, UK, Australia, or Europe. Moreover, this still doesn’t factor in accommodation and living expenses, which push your total obligations even higher.
Therefore, it is a good idea to start planning for it and investing in your children’s education through endowment policies or investment-linked insurance plans that align with their tuition timelines.
Manage high-cost goals
At this stage of your life, you may also have to deal with a flurry of other large expenses. These could include financing your wedding (If you’re not married already), purchasing/upgrading your car, or enrolling in postgraduate programs to upgrade your skills and advance your career.
With all these in mind, a disciplined budgeting strategy is of the essence. One such strategy is the 50-30-20 rule, wherein 50% of your income covers essential expenses, 30% is spent on your wants, and 20% towards savings. If you must borrow to finance your needs, choose options with competitive and fixed interest rates. You must also ensure that your debt obligations never exceed 40–50% of your monthly income.
This is keeping in mind the UAE Central Bank’s Debt Burden Ratio (DBR) cap of 50% for salaried individuals so they can qualify for more financing should they require it. In the case of pensioners, this ratio is capped at 30%.
Update your insurance policies
Your 30’s are a good time to revisit and enhance your insurance coverage. Consider investing in comprehensive health and life insurance plans to safeguard your family against any mishaps, critical illness covers to offset the loss of income in the event of long-term disabilities or illnesses, and add child insurance riders to your existing policies, which are available at lower rates when they’re young. Also, consider revisiting your parents’ coverage as well as they could become increasingly susceptible to health-related issues as they age, and their care should not cause you financial distress.
Pursuing your ideal retirement in your 40’s and 50’s
Your 40’s and 50’s are marked by peak earnings and career advancement. It is at this stage that one must prepare for retirement.
Lay the groundwork for a stress-free retirement
Deciding on your Income Replacement Rate (IRR) — the percentage of your monthly income required to maintain your lifestyle post-retirement becomes a key consideration here.
To determine the amount you will need for your retirement corpus to withdraw this money from, you must multiply your estimated IRR by the number of years you expect retirement to last. Bear in mind that while doing so, it is important to factor in variations in the cost of living arising from inflation, healthcare in your old age, support for your dependents, and, indeed, how long retirement may last.
Rebalance your portfolio for income stability
It is prudent to ensure income continuity in some form post-retirement. At this age, consider transitioning your invested capital from high-risk, capital appreciation-focused investments to lower-risk debt-based instruments, which focus on providing a stable and predictable income stream. These include government and corporate bonds,, treasury bills, and commercial papers.
Ultimately, the financial goals and objectives that take utmost priority in your 40s and 50s revolve around creating a retirement blueprint that is not only aspirational but also achievable.
Future-ready financial goals and objectives, but with a flexible approach
While a clear financial roadmap is paramount, it is vital to acknowledge that your financial goals, priorities, and obligations will almost certainly evolve. Your financial strategy needs to be adaptable, whether it is to your personal circumstances or the broader economy. Financial plans, then, must strike a balance between long-term vision and short-term flexibility.
Partnering with a well-informed and qualified financial advisor can make all the difference. Speak to Standard Chartered’s relationship managers or contact us to learn more about our insurance plans offered in the UAE.
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The Smart Investor’s Guide to Insurance: 4 Strategies to Build, Protect and Pass on Your Wealth