Category: Finance

Financial Recovery after a Major Loss

As if the financial losses we experienced during the lockdown were not enough, several businesspeople have had their means of livelihood destroyed during the riots that followed the shooting of peaceful #ENDSARS protestors by members of the Nigerian Army. Whether our losses were existing before the riots or were exacerbated by the rioters, we need to begin to put things back in place and rebuild. Re-starting after a disaster requires both mental resilience and financial creativity. The emotional resources we need include grief management, hope, faith, zeal, and endurance; this way we keep ourselves motivated to start and to continue rebuilding.

Financially, the first thing we need to do is to review our insurance policies. Before now, insurance companies used to refuse to cover losses from riots, but as the industry matured and competition grew, many undertakers now cover losses from riots. The insurance companies must be called in as early as possible to physically review the damages. You must take photographs before you begin any cleaning up. If you have used a reputable insurer, or you bought your policy through a reputable insurance broker, collecting your claims should be very straightforward. With the less reputable ones, you may need to work a little harder and threaten that you would report them to their Regulator, NAICOM, before you get your full entitlements.

Sadly, some of us may not have adequate insurance. Fortunately, some NGOs are already looking into ways of raising funds to support those who lost businesses in the last few days/weeks. Affected businesspeople should reach out to these organizations. Ensure you have all the information they may require to substantiate your claim; before-and-after photos, receipts for payments etc. This is not the time to shy away from help. Everybody needs a helping hand from time to time, so be bold and step out to receive the help you deserve, so you too would be empowered to help another needy person in future.

Next, we must contact our bankers, suppliers (who supplied goods on credit), and all other creditors (for instance, landlords, customers who paid upfront for products, etc.). Repayment terms would need to be rescheduled in line with your new business reality. Claims from insurance can either be used for repayment of credits or used to restart business operations. In most cases, claims are used for both purposes. Each businessperson must review her own circumstances, adopt the best solutions for her condition, and prioritize expenditure based on that condition. Unless you have a banking/ financial background, avoid negotiating with your bank by yourself, obtain professional advice. Confirm how much your insurance company is paying before agreeing to fresh repayment terms.

Some businesses may have lost hard copies of licences, contracts and certificates. Compile the list of such documents and reach out to the business partners involved, so they can issue new ones. If you have soft copies of documents, remember to attach them to your requests. Going forward, ensure that all vital documents are converted to digital formats and digitally stored.

When we know how much money available to rebuild, and the new payment schedules for our financial obligations, we must develop new business strategies, action plans, and financial budgets. Our financial and business objectives may remain the same, but the strategies for achieving them and the timeline for their realization would need to be reworked in line with the new realities. Remember to budget for adequate insurance to cover all the risks your business is exposed to. Also important is the Emergency Fund (rainy day savings) – once this is budgeted for, the business would create a fund that would help it to survive future shocks. Our new strategies must include disaster management. In addition to insurance coverage, physical barriers would also help to protect our assets from disasters, whether fire, flood, or rioting. Locks and barriers to delay the access of rioters. Overhead sprinklers to reduce fire damage. Every business should do a thorough risks assessment and develop effective risks management strategies. But when risks crystallize like they have in the last few days, we must then deploy effective disaster management strategies and business continuity plans. A business that is prepared with an effective business continuity plan has done proper scenario planning to imagine the various disasters the company may face and then gone ahead to develop routes out of each negative scenario. Therefore, it would recover faster than other businesses.

This week we have gone outside the personal finance mandate of the column, but it is essential, because most people get their personal finances from their businesses. I pray we all recover fully and quickly. Happy investing.

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Money Management for Couples

Our last article on financial independence for Millennials resulted in requests advice to young couples on family finances, wealth creation, and harmonious money-relationships. Money is a major source of marital stress, therefore it must be discussed and planned appropriately. Every intending bride or groom should take financial literacy seriously and invest in her/his financial education.

The first thing couples must discern is what is referred to as “money personality”. What is your money personality? What is your spouse’s? Who is the penny pincher, carefree spendthrift, moderate spender, or numbers-crunching bookkeeper? It is important to realize that each personality has its peculiar strengths and weaknesses and opposite personalities work together to create one perfect personality. Restraint must continually be exercised to avoid the blame game because opposing personalities complement and complete each other.

Couples must discuss their individual financial goals and harmonize them into a joint family goals that everyone (including children) works to achieve. They must also discuss lifestyle choices. Would you be the kind of family that prioritizes designer product labels? Would you rather buy the biggest television into your rented apartment or put the money towards buying real estate? When do you hope to transit from tenants to landlords? How essential to your lifestyle is an annual holiday abroad? Would your self-worth be diminished if you fly Economy Class? Lifestyle choices include children’s education. Do you both want only the best and presumably more expensive, or is one of you of the opinion that even children in public schools become doctors? How important is an exclusive education to you?

Then comes the discussion on what is mine, what is yours, and what is ours. How do we determine joint or separate ownership of assets, especially those acquired after the wedding? Do we maintain only one joint account? Or do we have separate accounts but contribute periodically into one joint account? Some wives earn more than their husbands and hide their salaries so as not to till the power balance in the home; my advice is, do what is best in your own circumstances.

Who would manage family finances? Joint management or is the tight-fisted person solely entrusted with this responsibility? Whilst this may seem a good option, think about the arguments that can result from that decision. Such arguments can be avoided by having a mutually agreed monthly budget. But you would have to determine upfront how you would make decisions on extra-budgetary expenses. Also, decisions on investment opportunities and debt – both personal and business debt. It is important to involve your spouse in debts you take in your personal and business capacities, this would enable them provide support and even willingly carry any additional financial burdens.

This brings up the issue of commitment to your spouse’s career. Women who have strong career aspirations must obtain the commitments of their fiancés to their careers, so that they would not be asked to make career sacrifices that could breed bitterness and even divorce. With mutual commitment, creative solutions to family challenges are adopted as against the lazy option of choosing the first culturally biased “solution”.

How about giving to extended family, religious organizations and charities? Monthly cash gifts to parents or church/ mosque should not be shrouded in secrecy, it should be part of your household budget. Additional extra-budgetary expenses should be discussed, and decisions made together. Even if the expense is coming from your individual account, it would help if your spouse is aware as this would enable them to provide additional support and willingly carry any financial burdens that may result from your extra giving. Many of us regularly support siblings and even distant family members, the same principle applies, avoid secrecy. Friends and extended family members must be made to realize that your family has just one purse. Children must be exposed to financial literacy from an early age, so they would understand your decisions and support you in achieving your goals.

Investment decisions should be made jointly, and assets acquired in both names. This implies that both of you have adequate financial education on the various investment vehicles and how they meet your family’s financial goals. Sometimes, this may not be feasible; if for instance an employer lends its staff money to buy an asset, it is unlikely they would permit a joint ownership of that asset. So long as the decision to take the loan from the employer is discussed upfront, your spouse should understand that the asset would increase the family wealth.

Transparency is a key to marital bliss, therefore as much as possible practice openness even in financial matters. Happy Investing,

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Financial Independence For Our Youths

This week’s article is mainly for our youths and their parents, as we seek to explore ways in which the former can become independent from the Daddy and Mummy Bank. Certainly, times are tougher for today’s youths than it was for their parents. Unemployment is rife because the world’s economy has changed but university curriculum has not changed to address the current skills requirements of the job market. Career guidance counsellors are failing our youths because the counsellors themselves are not up-to-date. This is not a sociology column, so we will limit ourselves to financial matters. How do our youths who have been blessed with jobs maneuver themselves from positions of dependency to levels where others can rely on them financially?

Some lessons should have been learnt from childhood. The first lesson is the principle of selflessness. Youths should know that life does not revolve around them. Parents need to instill into children the need to demonstrate financial selflessness by regularly giving out hard-earned money to charitable causes. Birthday cash gifts should not be consumed totally by the child, instead, it should be split into donations, savings, and spending. A youth who has grown up with the principle of charity would find it easier to release his mother’s apron strings because he would realize that he is more blessed than others.

The second lesson is the lesson of delayed gratification. Children who have practised this grow up into financially prudent youths. They are more careful in spending their salaries and find it easier to establish a savings habit. The third lesson is financial literacy. Children should be taught how money works, the basics of budgeting and the benefits of savings and investments. However, not all youths were exposed to these lessons, yet they all need to achieve financial independence. The three lessons mentioned earlier must now be learnt and diligently practised.

To become financially independent, you must be financially literate and current. Not everything that worked for your parents will work for you, the global economy has changed, new investment vehicles like cryptocurrency and crowdfunding are emerging daily. Learn for yourself and choose the ones that suit you. But you cannot even talk of investments and wealth creation when you are still dependent on Daddy and Mummy Bank for your basic needs.

Financial independence starts with budgeting and financial discipline. To have a budget based on your monthly salary implies you are now choosing to live within your means and any income or expense outside the budget would not be considered. This would require commitment and self-restraint, a deliberate choice not to compare yourself with your mates. The question you may ask is, why should I suffer myself unnecessarily when the Daddy and Mummy Bank is not closed, and my parents would gladly shower me with cash? If you think you feel good spending your parents’ money, I can assure you that the feeling you get from being financially independent is much more rewarding. It is a natural high, which is not substance-induced.

Pay yourself first! It is not how much you make, but how much you keep! Therefore, put money into your savings before you give anyone else your money. Do this by establishing a monthly standing order with your bank. As soon as your salary is paid, the savings would be moved out. Avoid using your savings for frivolities; instead, invest in yourself and save towards house rent, home furnishings, car purchase, professional examinations, wedding etc.

Do not spend salaries you have not even earned. This means that you should avoid buying things on credit with the intention of paying from future salaries. Consumer debt is a road you do not want to travel on; it exchanges dependence on parents for dependence on expensive creditors. Buy items only when you have the full amount. This puts you in a position to shop around for the best bargains and to negotiate hefty discounts. Learn to negotiate prices. Never accept the first offer. Improve your bargaining skills in order to reduce your expenses.

If you are hunting for a better job to increase your income, clean up your online presence. Recruiters check out potential employees online, you should therefore ensure that every picture and posting in cyberspace projects the image you want HR managers to have.

Parents, you need to help your young adults by demonstrating restraint yourselves. If you need to support them financially, avoid carrying the burden 100 percent. Let them contribute the bulk of the cost. The success from one transaction would build their confidence for the future and ultimately lead them to financial independence.

Happy investing.

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Surviving High Inflation And Low Yields

As you seek avenues for capital appreciation, please ignore instruments that promise unrealistic returns.

These are truly perilous times. We are bombarded with a rare combination of high inflation, low interest/ investment yield, currency devaluation and stagnating personal incomes. In Nigeria, inflation has reached exceeded 13%, heights we have not seen in years. Meanwhile yields on money market instruments are at a record low. The popular Federal Government Treasury Bills (TBs) that used to be the darling fallback position of investors is delivering a mere average of two percent per annum. This means that cash invested in TBs would buy 11 percent less goods next year than what the same amount would buy this year because, whilst the fund may have grown in nominal value, its real value has been eroded by inflation. In addition to these things, the increases in petrol prices accompanied by increases in electricity tariffs have dealt a double whammy on our purses. But survive we must. We should even do more than survive, we must thrive. We need to protect the nominal value of our investments as we strive to find ways to increase their real value.

We should consider strategies for capital preservation before looking at opportunities for capital appreciation. We must defend the nominal value of our investments through careful portfolio management. Our first strategy would be a flight-to-safety. Investments in well known, proven assets managed by well known, proven managers. Stay with the familiar, those with good, verifiable track records. This is not the time to experiment. With the record low interest yields coupled with the currency devaluation, many are being lured with new investment options. We must be even more careful than before, exercising the utmost due diligence and caution. If in doubt, do not deal. Even the familiar, proven investments must be reviewed more frequently than before.

The lockdown has had severe negative effects on many businesses; therefore, the companies who were faithfully delivering good returns may not be able to continue. If we cannot relax with familiar investments, how then can we trust new ones? We must monitor the economic sectors we have invested in, to confirm their continued viability. If we choose to invest in new assets, we should not rely on investment advisors alone, because many of them earn a commission if you invest in the assets the recommend, therefore their advice may be self-serving at times.

If we have the luxury of time, a second capital preservation strategy would be long-term investing. Investment yields always even out in the long term; the graph of highs and dips usually result in a healthy average, but only over a considerable period of time. So, investing long term in good equities would enable you ride the highs and lows and achieve not only capital preservation but also capital appreciation from reasonable investment yields.

The common strategy for protecting investment portfolios against erosion by inflation is to invest in inflation-indexed bonds. These are money market instruments that guarantee yields above the inflation rate. The fund managers of such instruments invest the pooled funds in equities, commercial papers (CPs), and derivatives.

Whilst some company equities may not deliver good returns in the current economic environment, CPs and derivatives can still manage to deliver above 13%, the only concern would be the availability of enough of such assets in the market. With the Central Bank of Nigeria generously supporting the market with single-digit loans, fund managers may not be able to find enough assets that can deliver yields above 13 percent per annum.

Capital appreciation requires a more careful assessment of both the asset and the asset manager especially at this time. Even you choose to invest in new asset classes; the assets should be new to you the investor, not new to the investment market. This means each asset and each asset manager must have a verifiable track record that you can review and conduct your due diligence on, before arriving at the decision to invest.

In this column, we have spoken several times on crowd funding instruments. Readers have reached out to me privately for recommendations, but I prefer that people do their own due diligence and be personally convinced before spending their money. Agriculture is a profitable venture because human beings would always eat. Sadly, some investors attempt to invest directly into farming without sufficient prior knowledge and so lose money. Investing in agriculture through a crowd funding platform may be the way to go at this time.

As you seek avenues for capital appreciation, please ignore instruments that promise unrealistic returns. Let us avoid the risk of losing money so that we can at least achieve capital preservation.

Happy investing.

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Avoiding Identity Theft

IDENTITY theft is the crime of obtaining a person’s personal or financial information with the sole purpose of assuming the person’s identity and carrying out financial transactions with the assumed identity. It is probably the fastest growing crime globally. Accounts are hacked and information like card details, bank account details, BVN, passwords, email addresses etc. are stolen. Online purchases are then made. In this post-COVID era, we cannot conveniently side step online shopping or having our financial information travel through cyberspace. But we can avoid being victims of cybercrime by keeping our electronic financial information and transactions safe.

Start with your device. Ensure your phone, tablet, laptop or PC has the latest version of anti-virus, spyware and malware protection. So that it will alert you if you visit a compromised webpage. Buy the best product and update it regularly. Scan your device frequently to ensure it remains secure because new spyware is being created daily.

Shop only at well known sites or the sites of vendors you can personally vouch for. You should not only vouch for their personal integrity but for their corporate governance standards that ensure they have installed the best up-to-date firewalls and protection on their websites to reduce the dangers of hacking, and that the information you input is encrypted end-to-end. They must publish this assurance visibly on their website. If this assurance is not available, you should explore other ways of payment – PayPal, Alipay, Amazon Pay, bank transfers, etc. These third parties who have invested in adequately secure payment infrastructure can collect the payment on behalf of the vendor. The vendor gets the money while you keep your information safe.

Obtain your mobile banking apps only from Google play store or Apple store. Avoid downloading apps from banks’ websites, and certainly not from third-party websites. Do not stay permanently logged in to mobile apps. Do not initiate auto-login nor allow your device to store your login details. Switch off Bluetooth when conducting financial transactions, in fact switch on Bluetooth only when needed. Keep your device itself locked when not in use, initiate auto-lock feature. Unlock it using both a PIN/ pattern and a biometric ID e.g. fingerprint. Banks too now have the biometric access option, so we can safely lock both the device and the app. Audit your bank statements regularly to fish out strange transactions.

Avoid inputting your payment card details in the presence of others, including members of your household. If you cannot guarantee continuous privacy every time you shop, you can input your card details into your Google account once. Every time you want to shop after that, Google would automatically furnish the information. It would fill in the card details but anyone looking at the device screen would see significant parts blocked out. We must treat our payment cards like we treat cash. Since we would not leave our cash lying around, we should not leave our ATM card lying around. We must not share our PIN with anyone. It is personal to your identity and should only be known by you. If you feel that your PIN has been compromised, change it immediately. Do not use an ATM with any gadget attached to it, it is probably a skimming device that copies the information of all cards inserted into the ATM. Always collect and destroy your ATM and POS receipts. Do not respond to suspicious emails, they may contain spyware that would steal financial information from your device.

Avoid using shared devices for financial transactions. If you must, clear the browsing history when you finish. Also never use free WI-FI or questionable ISPs, many are not encrypted. Instead, use the service provided by your Mobile Network Operator by using your phone as a mobile hotspot. If you must use a free WI-FI, ensure you have a good antivirus that can alert you on its insecurity.

If you suspect a breach of your data, report without delay to your financial services providers, so that your cards can be hot-listed. Cancel cards and replace. If a card has already been used, contact the vendor for help with recovery (e.g. delivery address of goods sold). Ask your bank for your recovery rights. You are not liable for transactions conducted after you report the breach to your bank. Close bank accounts if unauthorized online transactions have been conducted in them and open new ones. Use new alphanumeric passwords. Move your subscriptions and standing orders to your new account/ card. Exercise due diligence and caution in managing your information and transactions.

Electronic financial transactions are convenient and easy. Let us do our part to make them safe. Happy investing.

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Post-Lockdown Back-To-School Financing

EVERY year about this time, we discuss back-to-school financing because our children are about to commence new academic sessions and this usually brings with it heavy spending on fees, books, stationery, uniforms, materials,and accessories. This year has been a tumultuous year firstly for parents as our income sources were seriously threatened, depleted or in some cases totally dried out, secondly for children, who endured social traumas cocooned in closed places, and many were unable to get the sound academic trainings their young minds need. Thankfully, schools are resuming now and hopefully, they will be able to catch up.

We have always recommended starting early to prepare for September through target savings accounts. These accounts (in-bank, trust and insurance companies,finance houses etc.) encourage small but regular savings towards a target event; so that the financial burden is spread out and eased. Target savings accounts are also useful for other financially heavy expenses like annual rents, weddings, perinatal care etc.However, many of us may have had to dip into these savings during the lockdown. We must therefore look for other ways to reduce our current school expenses.

In previous years, many school proprietors would consider a discount if a parent has two or more children in one school. Others were willing to give discounts to parents who can afford to pay the full session (three terms) fees in September. However, schools were one of the most badly hit sectors during the lockdown. Their income sources dried up completely. Many had to put their staff on half-pay or no-pay. Therefore, it may be near impossible to expect them to offer sizeable discounts at this time; but parents should still request. Nothing ventured, nothing gained. Besides, the schools know that parents also suffered income and job losses during the lockdown.

Apart from tuition, other hefty expenses are textbooks, school- branded stationery, uniforms, sportswear etc. Parents need to consider hand-me-downs from older siblings, so long as the items being handed down are well preserved and would not cause embarrassment to the receiving child. However, some textbook publishers are frustrating the hand-me-down culture. They change pages of topics and move chapters around without changing any of the learning material in the textbook, all so that children using another edition of a book cannot flow along with their classmates. Their antics may not work in this post-COVID session. When we buy new uniforms and books, we need to label them well (not too conspicuously as to cause embarrassment) so that it can be returned to the child if lost. Backpacks, pencil cases, math sets, sandals, socks, and stationery should also be appropriately labelled.

Many parents pay for school lunches without asking if they can opt out. Packing lunch for children may seem like an additional task that parents are unwilling to add to their morning routines. But calculate the monetary gains and see if it is worth your while. Home-packed meals are usually cheaper, healthier, and fresher than school meals. Try a main dish with a small fruit and a dessert (e.g. biscuit or cake); the uniqueness would make your child very happy.

With the increased cost of petrol, car-pooling must become our culture. It does not make any sense for every family to take their car to pick up one or two children, when the cost of this pick-up can be spread thin amongst groups of families. Children who live near each other and go to schools close to each other should be organized into car-pools to save money. The necessary security clearance should be obtained from schools as required so as not to frustrate the car-pooling initiative.

The lockdown brought us fully into the e-learning age. Many children attended classes virtually using devices owned by their parents, who were also at home with them then. As schools resume, the expected trend is that teachers would continue to give assignments online and students would also submit online. Save money by not buying children top-of-the-range products to take to school. Firstly, children need to learn that getting luxury items is a result of hard work. Secondly, many of them are unable to care for these devices properly and they soon malfunction. Thirdly, a luxury item is a target for thieves – students, teachers and support staff can easily steal these devices. Therefore, it is best to buy cheaper but good and sturdy devices that would serve your children well.

We need to manage our finances creatively in this post-COVID era so that a little would go a long way. Happy investing and happy new school year.

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Interview: CBN’s GSI policy ‘ll reduce non-performing loans – Financial Experts

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

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Personal Finance Management Post-Lockdown

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.

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Reworking Our Financial Plans

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.

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Safety In Turbulent Times

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.

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