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Smartest money moves you can make in a financial crisis

ENTERPRISE
By Winnie Makena | April 7th 2021
Two Maasai counting Kenyan money. [Courtesy]

The country is under lockdown yet again, bringing with it some economic downturns. 

But that does not mean you have to toss away your year’s financial goals. Although it may be tempting to bust open the emergency fund and put a brake on investing, there are many opportunities to maintain wealth in these uncertain times. There is so much out of our hands, but you can control your money depending on how you spend, how you save and how you invest. 

 Rina Hicks, a director at Faida Investment Bank and author of Money-Wise: Create Grow & Preserve Wealth, shares her expert views on the smartest money moves you can make in a crisis. 

1. Buckle down on savings

If the coronavirus pandemic has taught us anything, it is that a financial cushion is necessary if not mandatory to have.  

A survey by the Kenya Bureau of Statistics in March 2020 found that 21 per cent of those who usually pay rent on time could not afford the same in April. At least 52.9 per cent of them cited lower income as the reason behind forfeiting rent. That is why savings should be at the top of your financial goals of 2021. 

“Those who still have an income need to figure out how to apportion them in a way that ensures that in all circumstances there are financial resources to meet basic needs. They need to anticipate an interruption to their current income. This means conserving and saving everything they can, more than before, limiting any big purchases and cutting out non-essential expenditure. Take time to track your expenses and review what you can begin to cut out,” says Rina.

She further recommends moving houses to a cheaper option, cutting subscriptions for now, eating healthy and exercising to boost your immunity.

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“Remember, as most insurance companies do not cover Covid-19, the last thing you want is to fall sick.”

While still on the topic of healthcare and your personal finances, you need to have enough to pay for emergencies without getting into a significant crisis or substantial debt. “Hospitals are also asking for cash deposits to admit patients,” says Hicks, insisting on the need for an emergency savings of up to six months of your monthly expenses where possible.

2. Start investing in yourself

The ability for a person to earn more is understated. Bigger than investing in the index and mutual funds, investing in yourself raises your odds of increasing your income, making it much easier to reach your financial goals than real estate ever could.

“Commit to enhancing your skills and improving yourself for life after Covid-19. What skill do you need to start learning? There are many tertiary institutions offering free online courses,” says Hicks.

“This will enable you to offer additional services, products or to be more innovative in the delivery of your services to your customers.”

You can broaden your income and networks by starting a side hustle. Despite the upfront costs, a side business can give you the entrepreneurial skills to grow into more significant opportunities.

“If you are employed, being more skilled will help you deliver more value to your employer, giving you more job security as the days go by,” adds Rina.

3. Great time to invest

If you are wondering whether 2021 is really the best time to invest, think of Warren Buffet’s words, “When others are greedy, be fearful and when others are fearful, be greedy.” Buffett is one of the most successful investors of our time and is known as a buy-and-hold investor. He chooses stocks that he believes offer good prospects for long-term growth.

The short answer is yes, invest now. Real estate prices historically always go up, despite the current market slow down. Of course, nothing is ever certain, but real estate remains a safe investment in terms of risk.

“Economic downturns present the greatest opportunities for investments as assets go down in value and investors with money have an opportunity to pick them up at a discount. Consider investment choices like the Money Market Funds for cash, Treasury Bonds, Treasury Bills, Income generating real estate and, stocks,” says Hicks.

She, however, warns against overly risky investments in favour of safe, liquid, low-risk alternatives.

“You should be aiming to preserve your capital. So as you make the decision on higher risk assets, such as stocks, invest money that you will not need for at least three years,” she adds.

4. Downsize 

Downsizing is more feasible to some more than others, but is the only way to counteract lifestyle creep. Many people are victims of lifestyle creep, and in uncertain times, this is something that could cripple you. It is a phenomenon where, as we acquire more money, luxuries become more like necessities. For example, with the new manager position, you get a new car that costs more in maintenance and a bigger house in a better neighbourhood. The danger of lifestyle creep is that it happens gradually over an extended time, making it hard for you to notice.

With the money freed up from downsizing, you are free to clear your debts, plan a comfortable retirement, or even invest.  

“Those who still have an income need to figure out how to apportion their income in a way that ensures that, in all circumstances, there are financial resources to meet basic needs. They need to anticipate an interruption to their current income. This means conserving and saving everything they can, more than before and limiting any big purchases while cutting out non-essential expenditure. Take time to track your expenses and review what you can begin to cut out,” says Hicks.

Certain schools of thought assert that 2021 would be a better time to upgrade to a larger home because developers offer easy payment schemes and customised payment plans for customers. “However, your choice depends on how financially secure you feel to take the plunge. If you are barely surviving, then moving to a bigger house is not necessarily a priority.”

 5. Avoid debt like a plague

Delayed gratification is a lost art, and people find themselves borrowing money for ‘wants’ rather than ‘needs’ that often leads to piling debt. Rina says paying down debt is ‘one of the greatest investments you can make for yourself, especially if the debt consists of mobile loans and credit card debt.’

Hick advises finding additional income sources, for example, online jobs like transcribing and freelancing opportunities, which can generate extra income.

“Debt enslaves and can cripple you, causing stress and anxiety. Where possible, reduce your debt as much as possible and if you can, pay it all off,” she adds.

Another way to aggressively tackle your debt is by earning passive income. Passive income is money earned while requiring little time or maintenance of the income generator. Real estate is the best example in Kenya, but consider other options like equities, collective investment schemes(CIS), passive consultancy like YouTube or a podcast, and renting out least utilised assets.

 

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