Tuesday, August 11, 2015

How much should your SALARY be in the UAE?

Car petrol prices have been deregulated; real estate prices are higher than they were a few years ago; and discussions are underway on whether or not VAT should be rolled out within the next few years.

Sometimes when I am sitting with some friends, the topic of economic inflation comes up and one can't help but wonder about how much should a person's monthly salary be so that all expenses can be covered and hopefully a little cushion remains so you can save it aside. Though it may be nice to be earning as much as you possibly can think of, the exact figure differs from one person to the next.

When applying to a job opportunity, some recruiters ask you about what is your expected monthly income. A mistake many job seekers do is respond by coming up with an average figure they determine by interacting with people, whether friends or professionals within the same or different field. The answer, thus, isn't an accurate reflection on how much you actually need, but is in fact a biased response that is developed based on what you know of the market. Simply put, if everyone you know makes an average of say AED 10,000 a month, you will perceive that you should be making around that same figure irrespective of your own personal requirements.

Your monthly salary should at all times be a true representation of your needs. As needs differ from person to person, salary expectations should also differ from person to person. It's a simple equation. So how much do you really need? The answer to this depends on many factors as explained below. 

Look at the essentials
What you receive as a salary should cover (and hopefully exceed) all your monthly expenses. The most substantial expense a working person usually incurs is the housing expense. This is usually made up of the monthly rent of the property, along with gas, water and electricity expenses. When choosing a place for living, it is recommended to pick a location that is at most 20 minutes (driving time) away from where you work to avoid building up stress developed from longer driving time.

Owning a car is still a necessity in the UAE. Ask yourself, are you still paying its monthly instalments? How much money are you spending on its petrol? How much are you paying annually for the insurance? Translate all those to monthly costs and add it to your requirements.

Your monthly grocery shopping and telephone bills (including your home WiFi) are also part of your essentials. Are your children in kindergarten or school? Will they be any time soon? Factor those in too!

Once you have figured out the monthly costs of all the essentials, figure out how much you need for sustaining all your routines. This could include going to the gym, shopping for new clothes, or even travelling. Once you do, translate those to monthly costs and add them up.

Finally, once all expenses have been figured out, add a contingency percentage which in reality should represent your target savings. Different people have different thoughts on how much this figure should be, but it is usually recommended to factor in around 20%. 

Are you making enough?
Hopefully, after going through the above, the total number that you just calculated works out to be equal to or less than what you are currently making. If it is higher, you will either have to re-visit your expenses to figure out how you can reduce them, or start looking for a new opportunity that is within your career ambitions and also can sustain your financial requirements. 

To recap
What you make as a monthly income should be a true representation of your financial needs, rather than a perception of what you should be making based on your interaction with others. Figuring out how much this number should be is determined by adding up your monthly essential costs with your monthly equivalent routines and topping the total with a 20% contingency that represents your savings. The total, therefore, should be equal to or less than what you are currently making, otherwise you'll need to either review your monthly expenses in order to reduce them, or start looking for a new opportunity that can sustain your requirements.

The essentials (in monthly equivalent):

  • Housing rental 
  • Water, gas and electricity bills
  • Grocery
  • Car instalment
  • Car petrol cost
  • Car insurance cost 
  • Telephone bills (includes WiFi)
  • Education
  • Any other unavoidable cost
Personal routine (in monthly equivalent; subjective to each person)
  • Gym
  • Travel
  • Shopping for new clothes
  • Cinema
  • Dining out
  • Entertainment
  • Books
  • Any other cost developed from personal habits and preferences

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