Money Matters With Nimi: Can Your Finances Cope With the Recession?

Nigeria has slipped into a recession after its gross domestic product contracted for the second consecutive quarter. With all that’s happened this year, it is so easy to throw up your hands and think, “more doom and gloom”. A recession is nothing to smile about, but inaction can be as damaging as rash, knee-jerk reactions. The good news is that these challenging times will come to an end, but before then, take a look at your finances and consider some steps.

Live below your means

If you haven’t ever created a budget, this is the time to do so. There is no better way to keep track of your expenses than to budget. How much do you need to live on? How much can you afford? Can you afford your home or office rent? Now that working from home is becoming the new way of work, do you really need all this space? Can you afford to stay in a particular location? Should you consider a smaller apartment in a more affordable neighborhood? Are your children in a school that you really cannot afford and is causing you to go into debt? Ask yourself these questions.

This is the time to prioritize between needs and wants. You must pay your rent, your children’s school fees, car insurance, utility bills, and, of course, you must feed your family. But do you have to eat out every day or take a vacation that you cannot afford at this time? This is the time to make those important choices that will help you ride the storm. It is time to consider cheaper, more sustainable options. Don’t compare yourself to others; you don’t know their journey. Ask yourself the hard questions, answer them honestly, and strive to give yourself peace of mind.

Build an emergency fund

It may seem absurd to talk about savings when you are just trying to stay afloat, but we all need a rainy-day fund, particularly at a time like this. Job loss is a natural consequence of a recession. If you are suddenly faced with an emergency, the last thing you need is to have to increase your debt to pay your bills.

A high-yield savings account is where experts advise that you park your emergency funds. Sadly, money market yields are currently very low, but the priority must be the safety and easy access to those funds; you will earn little or nothing on your emergency savings but you do need those short-term savings.

Remember that your rainy-day funds should be easily accessible; you don’t want to sell stock at a loss to pay for an unexpected emergency. Ask yourself: could you live off your savings for 6 months? If you have no savings, you really need to get started, bit-by-bit. Don’t get caught out next time.

Don’t ignore your debt

Avoid taking on more debt if you can help it. During a recession, debt obligations can be a huge drain, particularly if your income has fallen or is not likely to increase. If you are in debt, try to reduce the most expensive or most urgent debt first. Avoiding your lenders is the worst thing you can do now. If you are struggling to repay, approach lenders to see if they will agree to renegotiate the terms to give you some respite at this time.

Diversify your investments

Is all your money in one currency, in one institution, in the stock market, in one investment? If all your money is in one asset class, it is almost impossible to mitigate risk. Seek professional advice, review your investment portfolio and consider rebalancing if necessary. Asset classes tend to perform differently. With a diversified portfolio, you are generally in a better position to ride the market volatility without being forced to sell at a loss. 

Think long-term in your investment strategy. Avoid making drastic changes that will jeopardize your long-term financial security based on what is likely to be a relatively short-term economic event. 

Invest in yourself

You are your greatest asset. Don’t wait for others to develop you. When last did you invest in yourself? Many companies have cut back on training but with the internet, there are so many learning opportunities online that cost very little. You owe it to yourself to continue to improve yourself by reading widely and learning every day.

Even if you are struggling to build a financial buffer at this time, focus on getting some relevant training under your belt, particularly skills that could be employable and earn you income.

We’ve all heard the adage, Your network is your net-worth. Your network is only valuable if you invest in it and nurture it. Yes, there are fewer large gatherings, but you can be proactive about making the time to connect with those people with whom you can develop and nurture a mutually beneficial relationship. Networking provides you with new ideas, opportunities, and contacts. 

Create multiple streams of income

Even if you feel that your well-paid job is relatively secure, do explore opportunities for alternative sources of income so that if one source is threatened, you have others to fall back on. As long as there is no conflict of interest, your employer is in the know, and it isn’t sapping energy from your primary role, consider putting your talents to use. The ‘side hustle’ can be an important source of income but don’t get fired from your primary role while you are at it! 

Can you afford to retire?

You may be close to retirement and worry that you may not be able to finance a comfortable retirement with the current state of your finances. There is nothing wrong with postponing retirement for a few years if you can give value as it will give you more time to put things in place.

No one can tell for sure when this recession will end, but if you take the trouble to implement at least some of the time-tested strategies discussed above, you will be in a better position when things get back to normal. This storm will pass but another will come, sound financial habits will help prepare you or, at least, cushion the impact of the next crisis. The end of the year is a good time to review your portfolio, do get started.

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