Category: Finance

Black Friday Spending

Readers of this column will remember that every year in November we discuss Black Friday sales and how prudent investors should manage their spending during the sales period. Black Friday is the day after the US Thanksgiving Holiday. It is the first day of the shopping season and it traditionally ends on Christmas Eve. Retailers usually slash prices of merchandize, and shoppers go into a frenzy trying to buy what they otherwise could not afford. It is a time of shoppers’ delight. 

However, if not properly planned it results in spontaneous shopping, spending outside budgets and getting into debt. Money that should be used for other important things are diverted into things that we do not need. Many times, what we buy are upgrades or additions to things we already have. These purchases boost our egos but deplete our wealth. Remember, if you make an unplanned purchase that promises 50% savings, not buying the item at all gives you 100% savings. 

Black Friday discounts are real, every wise and prudent shopper should take advantage of them, but only in a proactive and planned way. 

We plan by identifying the items we want to buy; even luxury items and occasional indulgences are acceptable as rewards for our hard work. Begin early to save towards these purchases using target savings accounts. The problem with spontaneous spending is not always the items purchased, it is the fact that the spending is unplanned and therefore throws our financial budgets out of sync and delays the achievement of our financial goals. Target savings on the other hand are incorporated into our spending budgets and therefore do not hinder our goals. Open a new savings account or use one in a bank you do not usually patronize. Avoid banking conveniences like debit cards, mobile payments, online banking etc. on the account. This way you are not easily tempted to spend the money on other things. Set up a standing order from your main bank account to credit the target savings periodically so the savings are automatic and not subject to your changing moods or circumstances. Choose a transfer date that is as close to your monthly salary date as possible. This way, you save first and spend what is left. Most people fail at savings because they spend first and try to save what is left, but soon discover that there is never anything left to save after spending. We must always save first. 

To excel at savings, we must master delayed gratification. This concept has almost become taboo in today’s world of instant coffee, instant banking, and instant shopping. Borrowing has become very easy with the FINTECHs that process loans within 2 hours without even seeing the borrower’s face. Borrowing is now instant too. But like we have said in this column in times past, never borrow at a cost (and a very high interest at that) for consumption needs, save towards the purchases instead – hence the need to master delayed gratification. Anyone committed to financial prosperity must learn and master it. With this mastery, one is able to overcome the attractions of spontaneous shopping. 

Avoid using shopping as a pastime. Visit shopping malls with purpose, do not just wander in, especially during the Black Friday sales. Go in with a shopping list, buy the things on your list and leave the mall. Do not take all your payment cards with you, take only the one with the money required for the purchases. Leave the cellphone registered with your bank for mobile payments at home or even in the car so you are not tempted to make USSD transfers or other electronic payments. By the time you leave the shop to get your phone or additional payment cards, usually the impulse for the spontaneous shopping has ebbed. Pay attention whilst paying for the discounted goods; ensure the discounted prices have been entered into the shop’s cash register and that you are being charged the new low promotional prices and not the old higher ones. Set a spending limit for all Black Friday purchases. Share this limit with a trusted friend who can help monitor your compliance. 

In these days of e-commerce, you do not have to leave your house before you shop. Adverts for Black Friday sales are already popping up on our phones and computers. Shopping lists and spending limits will help us remain prudent even in cyberspace. But please remember to practise safe cyber shopping and pay only through trusted sites. 

Buying necessities during Black Friday sales is a great way to spend wisely. Happy shopping. Happy investing. 

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Back To Basics – Multiple Streams Of Income

Cultivating multiple streams of income is a sure way to achieve our financial goals quickly. However, we must be careful to maintain our quality of life and work-life balance. How then can we generate income passively, without spending unhealthy amounts of time working? In continuation of our Back to Basics series, we are discussing Multiple Streams of Income, especially passive incomes. Enjoy the Read

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Back To Basics – Financial Discipline

We cannot achieve our life goals without discipline. In the same way, we cannot achieve our financial goals without financial discipline. But it’s easier said than done. Are there any tactics that make it easier to do?

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Back to Basics – Financial Planning

With all the on-goings in the socioeconomic and political environments, it is time to ensure that our financial foundations are intact, and we have the basics firmly in place. This means we should take   another look at our financial intelligence, financial planning, and wealth building skills.

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Back to Basics

With all the on-goings in the socioeconomic and political environments, it is time to ensure that our financial foundations are intact, and we have the basics firmly in place. This means we should take   another look at our financial intelligence, financial planning, and wealth building skills.

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Effective Financial Management Principles For 2021

The beginning of a New Year is always a good time to review the effectiveness of the previous year’s strategies and update them for continuing relevance in the New Year.

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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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