As far back as June 2020, the World Bank already urged Nigerians to prepare for a severe economic recession, the worst since the 1980s. This recession is particularly biting because it is more of Stagflation. Ideally, when in a recession, because demand for goods and services are low, the rate of inflation slows down, stops, or becomes negative. This is not the case right now because at 14.23%, Nigeria’s inflation rate is the highest in 30 months.
Stagflation happens when there is a recession yet the inflation keeps rising. This combination is unnatural because inflation is not a condition that is generally seen when the economy is slowing or stagnant and unemployment is high.
Policy prescriptions in a situation of stagflation can be tricky since increasing interest rates to control inflation will make it difficult for the economy facing slowing growth to recover. At the same time, keeping rates low to support recovery may exacerbate the inflationary situation.
This article looks at what the individual citizen can do to protect himself at this time. To be candid, the best time many people should have read this article is in March as that gives them time to plan ahead. Be that as it may, I still have a few suggestions that may help in these trying times:
– Have an Emergency Fund: When the economy starts to dip, our jobs and our income can be put in jeopardy, and it’s for this reason that saving an emergency fund is crucial when you prepare for a recession. In a nutshell, an emergency fund is the money you’ve saved up for the sole purpose of helping you get through your day-to-day living during financial hardships. If it’s possible, try to save about 3 to 6 months’ worth of your salary.
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– Avoid interest-bearing debts: Carrying a debt burden is exactly that: a burden. And, during a recession when jobs are scarce and money is tight, those high debt payments will add only more stress to an already stressful situation. The lender is also going through a lot and the zeal to collect payment is high. If you have debts right now, you may want to renegotiate the terms or pay it off completely.
– Lead a More Frugal Lifestyle: Downsizing and learning how to live frugally can be a great strategy, because if you can learn to make do with less, you’ll increase your savings and you won’t find yourself struggling to adapt to a new lifestyle as a recession hits. Living frugally isn’t as difficult as it sounds, and contrary to popular opinion, a frugal lifestyle isn’t about pinching pennies and depriving yourself of things that bring you joy. Rather, it’s about making conscious spending choices that reduces expenses, with minimal impact on your lifestyle.
– Diversify Your Income: Most of us are familiar with the saying “don’t put all your eggs in one basket,” and this adage could be applied to your source of income. Relying solely on a particular job for all your income has inherent risk, because if the economy tanks and you lose your job, you’ll also lose your only income and your ability to meet all your financial obligations. I always say that in the age of the internet, there are opportunities in online and remote work to earn extra income especially if you are self-disciplined enough to learn digital skills.
