This is an article I co-wrote on the stress of financial difficulties for people living in the UAE and how to cope.
As the end of the year draws to a close, we have a chance to reflect upon many situations- particularly difficult ones- which have arisen during this time. The instability of the economy in the latter half of the year has proven to be a significant stressor for people, and one which needs to be recognized from a psychological perspective. This is because it has been unrelenting in its course, and secondly, because there is a considerable feeling of a lack of control at an individual level. Indeed, we can no longer ignore or underestimate the impact of this stressor, and we need to recognize the potential implications of financial challenges in our day-to-day life. We also need to understand how to modify our current coping strategies- particularly at behavioural and financial levels- so that we can begin to regain as much sense of control as possible.
As with any stressor that has considerable impact and is viewed as somewhat unmanageable, there is always the possibility that it will manifest in mixed feelings of fear, sadness, confusion and uncertainty, frustration, and guilt. Unfortunately these feelings can translate into more permanent mood states state of anxiety and depression with associated physical symptomatology, as your brain and body try to cope with a hypervigilant state. When financial strain is imminent, people feel particularly helpless as they are forced to start facing their worst fears and their 'true' reality- not being able to care for their family, for instance; and usually the fact that they have been living well beyond their means for too long.
People commonly describe the following warning signs: feeling exhausted, helpless, tearful, being on edge and angry, having no appetite or a large appetite, experiencing a decrease in concentration span, memory and productivity, they do not find anything fun anymore or they have given up caring, and they express an increase in generalized worry, sleeplessness and overall health problems. To cope, they utilize more quick fixes, such as alcohol, pain killers, cigarettes, and even spending money; and they use fewer self care strategies, such as exercising, massage, creating an optimal work-life balance, relaxation, healthy eating, communicating openly with allies and support, and- very importantly- financial planning to put their minds at ease.
In difficult circumstances it is imperative that we control whatever 'is' controllable. Naturally, this includes taking a step back, bracing oneself to face reality- and the worst possible outcome- and then attacking it head-on to the best of one's ability. If that means simply utilizing some productive self care techniques to feel better about our reality, then it is a good start. Some people also need to address their perceptions and unconscious self-limiting beliefs about money in general- will there ever be enough for you? Are rich people happy people? How much money do you need to 'keep up?' Does money determine your social status or self esteem? Another fundamental skill is the ability to manage oneself financially, but it is often a situation that sends us running for the hills.
Atif Sarwar, CEO of Capira Capital in Dubai, has provided the following valuable comments and suggestions.
For most of this decade, the growth that we have observed has been inflated through cheap credit and borrowing. People have been given a lot more money to spend- more than they have been able to afford- and this has caused a bubble in most assets around the world, ranging from house prices and stock prices, to consumer spending, and as a result, earnings. This means that prices are coming down very quickly, down to what they should have been without all the free credit around.
People generally lack self control and discipline when it comes to personal finances. When they are given more money- borrowed money- than they know they can afford to pay back, the result is that temptation takes over and they will typically over-indulge, akin to giving a child a whole box of sweets, and telling him he can only have one or two. Therefore, it becomes a problem when you are given a mortgage that is 6 times your salary, when you can only really afford 3 times; when you have 4 credit cards, when you should only really have one…or none, and so on.
So what does this mean for us today? We all need to recognise that things are going to slow down. This means that prices of assets will probably go down, and businesses will slow down due to less credit and less spending. The other issue is that of confidence. Most spending, hiring, and growth results from confidence that things will continue to go well. Yet, confidence has certainly changed to worry and fear. Therefore, we should be prepared for this slowdown, rather than continue to spend and believe things will not affect us in the short to medium term. To reverse our bad habits and get things back under control, we need to use our judgment to look at the affordability of the things we are buying.
Remember that we need to live within our means. If you are about to buy a car on finance, think twice. Put a bigger deposit down and buy something more modest.
Do not spend on credit cards you cannot afford to pay off quickly. The credit that this generation has got used to is not going to be so readily available anymore.
If you do not need to buy something, don't! We all need to start saving more and spending less. Our generation do not, and have not, saved enough for both leaner times, and for when we get older. We are all living and working a lot longer than previous generations, and we must start putting a reasonable sum away every month for those times that will inevitably come.
Many people in the UAE have to deal with paying ever increasing rents, in addition to a mortgage on a home that they have not moved into yet. So there no clearer motive than to start being more prudent now. If you are yet to buy a property or are considering buying one, you should be aware that the banks will be far more conservative in their lending and will not only look twice at the valuation, but will also be asking for a greater cushion in terms of the equity you put in. You should also shop around for the best rate possible and ensure your monthly payments are a reasonable percentage of your monthly income. If you are dubious about buying a property today, then perhaps it is better to wait for calmer times. For those that are proceeding with purchases or already have a mortgage, it may not be a bad time to start looking at buying some mortgage protection.
"My goal is not to cause alarm but for people to be aware that by starting to be more careful now and living within our means today, could pay huge dividends in the near future", Mr Sarwar states.
Indeed, the chance of your future success depends on your ability to simultaneously manage current and potential psychological issues, whilst addressing any steps that you can to ease your financial pressures.
With sincere thanks to Atif Sarwar, CEO of Capira Capital, Dubai.