In the past few weeks, we have seen an unprecedented change in life as we knew it. The outbreak of the coronavirus exposed our vulnerabilities as people living in a much inter-connected world, with very different, yet so similar yearnings for survival. Many cities across the world are on lockdown with millions of people working from home, global supply chains have been disrupted, the travel industry is taking a back seat and many organizations are already reviewing financial projections downward on the back of an emerging economic slowdown. As of now, staying at home is reportedly the most effective preventative measure to contain the virus. With “social distancing’ as the latest buzz word, everyone is taking safety and health as priority across the globe.
I have been hearing many people complain about having limited resources to get by, following which I took a moment to reflect on the impact of this stay at home narrative on the finances of two (2) classes of people in Nigeria. How many people can afford to be on lockdown for an extended period? How many people are financially ready for the potential effects of a tighter economy and its associated outcomes like private sector downsizing, stressed business opportunities and job loss? Statistics show that Nigeria had about 90m people living in poverty, on less than the equivalent of $1, pre COVID-19. How much worse could things get?
For the large informal sector of petty traders, artisans, taxi drivers’ etcetera who depend on daily wages to feed and cater for their families, the ensuing lockdown must be a very painful and punitive measure. To digress a bit – Inasmuch as they might eventually gain some understanding of the rationale behind the pronouncement, there is an ongoing social tension as to whether the virus affects the rich or the poor, who is responsible and who is taking the hit? How then do we resolve the painful conflict between economy and the health of the people? As with many economic challenges, the poor takes the hit faster as they have no buffer to cushion the impact but that is not the focus of this article.
The next category of folks, who would be the focal point of this article, are the people that we refer to as the lower middle class, or perhaps the middle class in general. These guys have a decent job but still find themselves living from paycheck to paycheck. Whilst they might be lucky to keep earning a salary, they usually have nothing saved to cushion the impact of a possible job loss. Many of the people in this category will still struggle in these times because they were not prepared.
This brings me to the concept of emergency funding; how much money does one need to have saved up to cater for unplanned scenarios like COVID-19? For everything from a job loss, to emergency hospital bills to catering for a larger extended family and helping a family in need in times like these?
It brings to the fore the need for people to be more intentional about managing their money. I would like to dispel the myth that personal finance planning is only for wealthy people. In a matter of fact, it is quite the opposite – it is for regular people who want to be financially independent and build sustainable wealth. I am always quick to say that the way you manage your N10,000 in the bank, is the way you would when the balance is N10 million. Money habits must be inculcated early enough to help young people secure a worthy financial future. The ones that have an emergency fund, as part of a good personal finance plan, would be able to withstand the impact of uncertainties especially of a pandemic nature as is the current reality, than their counterparts who behave otherwise.
So, to the budding young worker or middle class professional, what are my tips for making your finances shock-proof? I’ll share two;
First is the need to understand debt as a financial tool. Know why and when it is okay to borrow, what pricing is optimal, how to restructure should the need arise and more importantly, when to pay it off. You don’t want to be owing exorbitant amounts in a recession, coupled with job loss – sounds daunting right?
Secondly, you must find ways to boost your cash reserves. This can be achieved with a firm resolve to ensure your monthly expenditure is less than your income, in what I would call living below your means, and by identifying smart ways to cut back on your expenses – this is not the time for mindless spending. You would do well to go through your finances with a fine-tooth comb, identify the non-essentials taking your money and cut back accordingly.
The current happenings are a firm reminder that life happens, the world in which we live is full of uncertainties and nobody wants to be caught unawares. To my mind, managing your personal finances in a conscientious way is a major additive in the recipe for peace of mind and financial wellbeing in the long run.
Temitope Busari, CFA
Temitope is a Chartered Financial Analyst and Personal Finance Expert with over a decade of work experience spanning different markets across sub-Saharan Africa. She currently works as Treasurer of a leading consumer finance organization in Lagos, Nigeria. Her passion for social impact and sustainable wealth solutions has seen her deliver financial literacy coaching to many individuals and small businesses, helping them make better financial decisions. She also enjoys a hobby in media, as a Co-Anchor on the TV Show – WAYS (“What Are You Saying” on PlusTV Africa), where she volunteers to lend her voice to social and topical issues as it affects us all.
