As important as savings and prudence are, wealth only comes by active creation

I am certainly one of those who believe that we cannot get financially independent just by saving. As important as savings and prudence are, wealth only comes by active creation. We only get rich by increasing our incomes. However, savings are the precursor to investments. We can only invest funds we have accrued through savings. Therefore, as you read today’s article, please bear in mind that savings are not the end in themselves, but they are the means to the end. How then can we plug increase our savings? Where are the leakages that are draining our investible funds and consequently the growth of our wealth?

Subscriptions – they are the 21st century’s fad. Many subscribed to packages on social media platforms, cable TV and telecoms services. Take social media for instance, do we really need the premium package just so that we can be the first to read what is happening in the life of so-called celebrities? Most of the “hot” news becomes common and freely available knowledge within a few hours. It may not be worth the extra cost. Another drain is the cable TV subscription. How many of the 250 channels in the premium package do you watch in one month? Do you really need the extra view access if family members are not watching TV at the same time? Do you need premium cable TV and Netflix subscriptions together? What could the N18,000 paid for monthly premium subscription do to your investible funds? In addition to these two types of subscriptions, we have the undergirding one – data package. We use internet data subscriptions to access our social media accounts and Netflix subscriptions. If we review the usage of our data, we may discover that we spend more data on browsing to find the materials to watch, than on actually watching any material. We must determine ways to reduce the amount of data we use, and consequently the amount of money paid to internet service providers. We should utilise data saving mechanisms and curb the amount of data available for use by different applications. We must also regularly change our MIFI/ WIFI passwords and use strong alphanumeric passwords.  Some people have discovered that their neighbours use their WIFI without permission, having hacked into their accounts because the passwords were easy to decipher and remain unchanged for months.

Entertainment – Saying no to entertainment expenses requires financial discipline but thank God that the lockdown has helped us unintentionally. Do we really want to go back to the days of buying aso-ebi every month? Buying and sewing, then women add the cost of gele tying and professional make-up. Assuming the aso-ebi is ankara, if we spend N15,000 on one occasion every month, that is N180,000 investible funds drained from our wealth every year. Even without calculating the potential incomes, that is a sizable amount of money lost. Better to give it to charity and improve the socioeconomic environment we live and work in. Eating out is another drain that we can plug. Make cooking a fun event for the whole family. When the social distancing rules are relaxed, invite friends to eat in your house instead of taking them to restaurants. Pack snacks, school lunches etc, from home. Home packed meals offer better quality and quantity than the mass-produced ones. Study the situation for a month; see if there are significant financial savings from home-packed meals and take a decision on plugging the leakage.

Unplanned spontaneous spending is a leakage we must learn to plug consistently. Avoid spending money on anything that you did not budget ahead, except of course medical emergencies and disaster recovery items/ services. Never give in to pressure to spend. Ask for time to think about the purchase. Walk away from all the physical stimuli that are bombarding your senses and attacking your willpower. Walk away! Help yourself by preparing a shopping list every time you visit the mall or market. Do not take all your ATM Cards with you. Leave your phone in the car, to avoid USSD transfers. Many times,after walking away from the situation that is pushing the unplanned buying an item, we realise and conclude that the purchase is unnecessary. If it is still necessary after 24 hours, plan its purchase in subsequent budgets. Delayed gratification is a virtue that everyone serious about financial independence must master. It would help you keep your investible funds intact.

Wealth grows through increasing incomes, while income is generated through investing savings. Let us accrue all the funds garnered from the leakages and invest them in high yielding assets. Happy investing.

With this GSI, banks will be able to take money from other accounts in any bank in Nigeria to pay any debt being owed by such a person.

By Ibukun Emiola
Ibadan, July 17, 2020 Some financial experts have lauded the Global Standing Instruction (GSI) policy of the Central Bank of Nigeria (CBN), saying it will reduce the non-performing loans already on the increase in Nigeria.
The experts expressed the views in separate interviews with the News Agency of Nigeria (NAN) on Friday in Ibadan.
Mrs Lolade Adesola, a Financial Consultant at L. A. Consult, Ibadan, described the GSI as a very welcomed policy by the apex bank because of borrowers with fraudulent intentions.
“We know of borrowers who have money in one place and deliberately refuse to pay, just because the law says if money is in one name, another name cannot be used for repayment.
“But with this GSI, they will be able to take money from other accounts in any bank in Nigeria to pay any debt being owed by such a person.
“This is applicable, as we have an increased number of people who take loans, put the money in other banks and are then running their business,” she said.
Adesola said that this was what many people used to do while she was in the banking sector.
“People will get loans in one bank and refuse to pay back, and instead of paying money into their accounts that are in debt, they will go and open accounts other banks and be running them very well.
“So we are glad that a policy like the GSI has been formulated to cater for this lapse in the banking sector,” she said.
Adesola noted that the family members’ accounts were included in the policy, because most people opened accounts in the name of their family members.
“Although the policy ought not to have included family members’ accounts, we have, however, seen cases where people use family members’ names to open accounts, but they are the ones who sign cheques.
“I have seen a person, who brought out a cheque in someone else’s name and signed it, and the signature was exactly the one we had on the mandate.
“So people do all sorts of things and I am glad that they are being prevented from continuing such practices.
“You will see the account name of a minor with as much as N10 million and you will know the money in the account does not really belong to such a minor.
“Such money can definitely be used for repayment under the GSI, if it can be reasonably proven,” Adesola said.
According to her, the policy will make people think again before getting loans and make banks more comfortable to lend money to genuine businesses.

Source

Work is changing; new skills are required for tomorrow’s work. Employers would only retain staff who demonstrate the skills needed in the digital age.

For many of us, our finances were negatively impacted by the recent lockdown. This has necessitated a comprehensive review of our personal finance management strategies to ensure they conform to effective money management principles.

For instance, Emergency Funds. Many have never seen the need to have cash and near-cash assets enough to meet up to six-months living expenses. The discipline to save has been difficult to develop. However, recent experience brings to the fore the vital importance of keeping an emergency fund.

Whilst many postulate that we would never have another global lockdown in our lifetime, there are various other adverse occurrences that would be easier to overcome if we had a “rainy day” fund. Emergency funds were advised long before the lockdown to enable us to manage financial stress caused by retrenchments, accidents, surgeries, deaths etc. Insurance can also help us cope better with some of these adversities. It is no longer a luxury nor is it reserved only for those with little faith.

The lockdown also emphasized the need for us to have multiple streams of income. Whilst we were all locked in and many self-employed were unable to earn a living, some people were pleasantly surprised with deposit alerts in their accounts, as dividends from the big banks were credited to them. There are testimonies of people who claim that those dividends were timely lifelines to their families’ survival. This underscores the need to diversify our sources of income.

Many small business owners feel the need to put every kobo they get back into their business’ growth. At face value, this seems incredibly wise. But the new realities of lockdown confirm the age-old adage; putting all our eggs in one basket is never wise. Salary earners too need to diversify their income streams and investment portfolio. Although you may not be able to do a second job, you can get your money to work for you through investments in both public and private equities. Investments in the stock exchange must also be sufficiently diversified, so that when one sector is stressed and unable to pay good returns, dividends from other sectors would it balance out.

The lockdown also highlighted the need to upgrade our skills. Remember, the income we earn is causally related to the work we do. Many were able to take free online courses to improve their ability to do their current jobs and even, in some instances, to change their lines of work. But, we must not wait for lockdowns to upgrade our skills. Whilst the stay-home provided ample time to undergo trainings, if we are serious and committed to new skills acquisition, we can always create the time for it even when fully occupied in a 9-to-5 job. We just need to reprioritize our activities and reschedule them.

Work is changing; new skills are required for tomorrow’s work. Employers would only retain staff who demonstrate the skills needed in the digital age. Let us be proactive and remain relevant in our industry, so that we can continue to earn sufficient income to meet our current lifestyle needs and still have something left over for retirement planning.

The lockdown and attendant threats to our personal wealth have also motivated us to change our priorities. No longer can we continue to indulge in excessive consumer spending and consumption. Prudence is no longer a dirty word or the concern of only the poor. Many now realize that buying the latest model of their cell phone when their current one still works efficiently and looks good, is no longer a matter of “life and death.”We have been compelled to reduce the amount of money we spend on social events; aso-ebi, tailors, makeup artists, gifts etc. With the forced online attendance of social events occasioned by the need for social distancing, the cultural outlook is changing. Of course, if and when social distancing is no longer advised, some may want to return to the old ways, but certainly there has been a shift in attitudes and we have “a new normal”.

During the lockdown, we moved our activities online. Financial, education, religious, and social activities were all impacted. CBN’s cashless policy was certainly advanced by this lockdown. Let us continue to ensure the safety of our financial transactions in cyberspace. Do not share your PIN, even with family (they can mistakenly share it with others). Change your PIN often or anytime you feel it has been exposed. Do not use public WI-FI for financial transactions, other people may see your activity. Destroy POS receipts. Prevent identity theft.

Let us all adapt to the new normal. Happy investing.

Time is money. Let us start rebuilding to make up for the recent losses.

IN the light of recent financial stresses many have faced or have been threatened by, there is a need to revisit our financial plans and align them with our current realities. Our emergency funds may have been drained, new spending priorities could have emerged, and the timelines for achieving financial goals may need to be extended. Like with our initial financial plans, every member of the family must be onboard to ensure that no one inadvertently sabotages the efforts, moreso if additional sacrifices are going to be required of them.

A financial plan enumerates our financial goals, either tied to the financial aspects of life events e.g. weddings, education and retirement or standalone goals of wealth creation. Each goal should have a monetary value and specific timeline attached to it. The plan then describes how these monetary values would be attained within the set timelines; typically, through savings from income, followed by the investment of those savings in assets that generate passive income and build our wealth. With the recent financial stress, those timelines may need to be changed, probably because we are no longer earning as much as before or simply because cannot afford to save as much due to changed priorities. Whatever, the reason, in order to achieve the goals we set out, we should amend the two major factors –amount saved/invested and timelines.

We start by appraising our financial situation and our spending budgets. A realistic budget carefully considers all our spending obligations and puts realistic figures on them. Popular wisdom recommends that before a budget is developed, we spend 1 month (1 salary cycle) reviewing what we are now spending on various items , this enables us to determine how much to reallocate to each category of expenses and which expenses we can successfully reduce or eliminate. Budgets should make allocations to food, housing, utilities, personal care & clothing, transport, dependents’ requirements, entertainment, taxes, insurance, rebuilding of emergency fund and savings (for investment). When we arrive at the amount of funds we have left for investments, we would see clearly how much extra time needs to be allocate to the achievement of various goals.

There may be a temptation to invest in higher yield assets to make up for lost time, but we must remember that the higher the yield, the higher the risk of losing the principal invested. Therefore, we must ensure firstly, that we are comfortable with the new levels of risk. No point having sleepless night because of money. Secondly, we should conduct comprehensive due diligence exercise on each investment – the asset, its managers, the income history etc. before we commit our hard-earned money to it. For the risk averse, it is better to keep their principal and earn a small yield than to lose the principal in the bid to earn hypothetically higher yield. However, we should look beyond the conventional money market and stock market for investments. Closely held equity, peer-to-peer funding, crowd funded projects and real estate should be carefully considered as parts of our new investment portfolios. Having these alternative investments in addition to the traditional ones would ensure that our portfolios generate optimal returns on investment whilst be adequately diversified. Diversification, we remember is a risk management strategy (do not put all your eggs in one basket).

Like we have discussed many times in this column, we can get free yet incredibly good help for our financial planning through the use of personal finance management (PFM) apps. Installed on our cell phones or other compatible devices, they help manage our finances by assisting in the creation of budgets and SMART goals, alerting when bills are due, giving investment advice, monitoring compliance with spending budgets and evaluating our progress towards achieving our financial goals. The budgeting function suggests different expense headings that you may want to budget for, and some apps recommend what percentage of your income should be spent on each expense head. The budgeting function works in tandem with the expense tracker, which as the name suggests tracks every expense made. Every month (or whatever period you choose) the app compares your budget with your expenses (using graphs and charts) and helps you to identify how disciplined you are in sticking to your budget.  The investment management feature provides limited financial advice; using artificial intelligence to analyze data and profile the app user. It helps create investment goals and monitors your progress in achieving the goals. The apps also help with portfolio diversification.

Time is money. Let us start rebuilding to make up for the recent losses. Happy investing.

If you are risk averse and looking for safe havens to put your assets at this time, the money market could be your good choice.

THE current macroeconomic situation, the wild fluctuations in the stock and commodity markets, threats of recession and the grim predictions of IMF/ World Bank may be necessitating a flight to safety – Money market (MM) instruments. These instruments are essential for proper investment portfolio diversification, but they are also the preferred investment choice in turbulent times. But what exactly is a money market instrument (or security)? How do they work? What makes them the preferred low risk investment option?

The wild price fluctuations and unpredictable profit scenarios mean that an investor in the stock market and other investments could receive little or no returns on their assets and even stand the risk of losing part of their principal. However, the risk of losing principal investment is close to zero in the money market. MM instruments have notoriously low returns on investment (because of the lower risks), but if capital preservation is important to you, they are the way to go.

The money market is where liquid financial instruments with relatively short tenures are traded. An MM instrument, sometimes called a bond, is actually a debt. The investor (bondholder) grants the bond issuer a short-term loan to enable the bond issuer meet operating expenses. In return the bondholder is paid an interest at an agreed interest rate (aka coupon rate) at agreed times, and at the maturity of the bond, the investor collects the original sum invested. Compare this to investment in company shares (equity), where the investor never gets the original sum invested back, because the money was used to buy her portion of the company; but she will receive dividends whenever the company makes profits.

These instruments can be easily converted to cash, so when the economy is more stable, you can move the funds to higher yielding investment vehicles. Returns and yields are predictable; hence the other name for MM instruments is Fixed Income instruments. They are issued by governments (national and sub-national), banks and companies. They can be secured or unsecured. Federal government bonds are generally classified as risk free because they are backed by the might of the country’s central bank. In Nigeria, they include the treasury bills (TBs), FGN savings bonds and FGN bonds. Interest earned from FGN instruments are tax exempt and therefore are not subject to the 10% withholding tax payable on other MM instruments. In addition, treasury bills pay the interest upfront; so, under the principle of time value of money, the interest received is actually higher in value than if it was received backend because the investor gets to use the money 90 days (depending on the tenure) earlier. The combination of upfront and tax-free interest makes TBs an excellent MM instrument.

State government bonds are also available. State governments issue them in order to generate bulk amounts of money to fund key infrastructure projects. The dwindling resources of state governments need not alarm investors as they are protected by the terms of the Bond; such that money for payments to bondholders are deducted from states monthly statutory allocations first, before the governors have access to the allocations. Sadly, with the current dire situation of state government accounts, this asset class may not be available for a long time, except maybe in the secondary market.

Corporate bodies also issue bonds. There are two main categories – commercial papers (CPs), which are unsecured bonds and bankers’ acceptances, which secured because they give the investor recourse to a bank in the event that the bond issuer defaults. Therefore, in buying CPs, the investor must ensure that only the best run companies are considered. Real estate developers also issue longer tenured bonds for the development of residential, commercial or infrastructure projects.

Fixed deposits are another form of MM investment. They are loans to banks for a specified number of days, which the banks in turn use to fund their operations, that is, lending to their customers. This is the reason banks frown are liquidating fixed deposits before maturity; they have relied on such deposits, lent out the money and in most cases, the borrower is not due to repay.

MM securities are regulated by the Securities and Exchange Commission (SEC). They are listed on the FMDQ Exchange (the MM equivalent of the Stock Market) for both initial offerings and secondary trading. To guide your due diligence, look out for the rating given the instrument by reputable rating agencies like Agusto and Co.

If you are risk averse and looking for safe havens to put your assets at this time, the money market could be your good choice. Happy investing.