15/05/2020
PERSONAL FINANCE DURING AND AFTER COVID-19/LOCKDOWN
As a nation and global citizens, we are currently facing unprecedented times brought about by the Covid-19 pandemic. NO ONE COULD HAVE PREDICTED this disease and its far-reaching effects during their company’s 2020 strategy sessions last year or at an individual’s new year’s prayer night at the beginning of the year. NO ONE!
The outbreak of Covid-19 is a global health issue that has pushed several countries and cities into partial or complete lockdown, with social distancing and new public health practices the new norm for the foreseeable future. The impact has been felt in every aspect of our lives world over and has trickled down into the sources of our livelihoods.
Many businesses have been impacted. Some have closed shop, others scaled down and some will never return. On a positive though, some new businesses have emerged or used this lockdown to thrive and grow. However, the negative impact on business still greatly outweighs the positives.
This has in turn had ripple effects on the employees in these organisations. Several employees are on unpaid leave, salaries have been cut, others can’t guarantee a salary for the next 2- 3 months while others don’t know if they will have a job available when they return to work once the lockdown is lifted.
The common denominator is all this is FEAR and UNCERTAINITY. And this has crept into our personal finances as well.
This article isn’t intended to magnify the highly changed world and the subsequent impact on your finances. The purpose is to give practical and simple steps on how we can manage our finances better both during and after this difficult time.
The article will cover 4 broad aspects; self-reflection on your finances over the past month, the practical things that you can do now, and after the pandemic and lastly useful information for our general benefit.
Beginning with self-reflection, how has the Covid-19 pandemic impacted your finances? For this, I will use 3 variables; income, costs and savings.
INCOME: Is it still regular? Are you not sure of its predictability going forward say over the next 3 months? Or are you totally unsure of its stability and are planning on making hard choices for the future to keep your families or yourself moving forward?
COSTS: Have your costs gone up, gone down or remained the same?
SAVINGS: Have they gone down, remained intact, been exhausted or they didn’t exist in the first place?
Be honest with yourself. The answers will give you direction and make the rest of this article relevant to you.
PRACTICAL THINGS TO DO NOW REGARDING YOUR FINANCES
1. To begin with, for now the emphasis should be on maintaining health for yourself and your loved ones. Now more than ever, we need to listen and adhere to government directives on social distancing protocols and follow the recommended public health guidelines. Relatedly, due to limited movements and physical interactions we are now facing, exercise is greatly encouraged to keep our bodies and minds fit and keep stress and depression at bay.
2. Don’t panic and let your decision making be influenced by fear. Covid-19 is beyond anyone and panicking will do no good. Make financial decisions based on fact and as the situation evolves. There have been cases of people selling cars, houses, emptying their bank accounts based on fear of the unknown coming months and evolution of the pandemic.
Consider making financial decisions over the next 6 months on a monthly basis after obtaining the relevant information on your finances with reviews done fortnightly. This will keep you in control and not fear.
3. Prioritize your financial goals for the 6-12 months. The recommended prioritization should be basic survival, cost containment to savings replenishment/ growth over the next 6-12 months in order to deal with the unknown future.
It is important to structure your finances along those lines and be in control. This calls for financial focus on addressing necessities first as these are critical to your survival and wellbeing. Wants (those that make our lives easier like transport etc) and luxuries (those that make us feel good) should be seriously evaluated before purchase. This process is called cost containment.
Cost containment will enable you grow your savings to safeguard yourself from future uncertainties like pandemics, natural disasters, political instability etc. It will also enable you manage in case of job loss or diminished incomes.
As part of prioritizing your goals, long term investments are advised to be shelfed over the next 6 months. Planned investments like the purchase of land, property or building projects should be put on halt and evaluated later based on your actual financial position. This is because you are not sure of the financial impact over this period as the pandemic and its effects are still unfolding. The money injected in these projects might be required for your survival and wellbeing and could place significant financial strain on you if already committed to.
4. Have honest discussions with your key stakeholders. Now more than ever, honest conversations regarding your finances are required with your family, employees, financiers, suppliers etc. If you are experiencing or anticipate reduced income, the family must be aware of possible changes to their lifestyle and get prepared for it. Discussion like reduced DSTV packages, reduction in the frequency of meat and chicken at the dinner table, possible change in schools or even movement of the family to the village or a cheaper house must be had. These need to honest and clear.
The same applies to your business partners i.e. financiers and suppliers. This crisis has affected all including them. Playing hide and seek with them and not being forthcoming will only make a bad situation worse.
5. Understand your obligations. This pandemic calls for us to have up to date information on the status of what and who you owe (our liabilities). For those with personal loans, obtaining loan statements and review of loan agreements to fully understand the terms of the financing and current balances is required. This information will be critical to discussions around loan refinancing and proposed payment plans over the coming months.
The same goes for rent. Understanding your tenancy terms and the number of missed payments make discussions for rent deferral or reduced rental payments focused and factual, all to your benefit.
6. Have personal reflection on your finances. If there is one thing that the Covid-19 lockdown has done to us is give us lots of time. Its advisable to use this time for honest reflection on your finances to allow for avenues for financial betterment in future. Did the pandemic get you with no savings at all? Have you realized that your spending was out of control? Has the pandemic revealed to you that you need more income sources? Use this time for honest reflection and it will make your journey to financial improvement much easier.
7. Maintain the good financial habits. If you have maintained the good financial habits of saving and managing your expenses during this time, maintain it. The tough times are not an excuse to drop good habits if you are still able to.
PRACTICAL THINGS TO DO AFTER THE PANDEMIC/ LOCKDOWN REGARDING YOUR FINANCES
1. SAVE, SAVE, SAVE. If you are to remember one thing from this article, let it be this. SAVE. This lockdown has magnified the need to make and have savings for such unforeseen situations like the ones we are currently experiencing. Savings provide the financial fuel to get you through tough times and unplanned occurrences like deaths, sicknesses or accidents.
In addition, savings provide the first and cheapest source of funds for investments for future projects as well as purchase of both capital and consumer goods like electronics that make your life easier. There is thus great benefit in savings.
2. Maintain liquidity. The sudden nature of the lockdown measures required quick and easy access to cash. several people believe in keeping their wealth exclusively in fixed assets like vehicles or land or in their businesses say in stock while leaving very little liquid cash to address emergencies. Maintain a portion of your assets (atleast 5%) in cash or near cash form. There do exist investment avenues like Collective Investment Schemes/unit trusts run by reputable financial institutions that provide liquidity coupled with earning potential to provide a decent return on your liquid assets.
3. New opportunities will emerge after the pandemic. New businesses will spring up, industries will evolve, and new trends will become the norm. All these present investment opportunities that never existed before. It is however critical to do your homework on these opportunities before rushing to invest. Understand the risks and possible mitigants, learn how the business makes or losses money and familiarize yourself with the anticipated returns to match your risk. These will help protect and grow your investment.
“In times of great economic uncertainty happens the greatest transfer of wealth”- Robert Kiyosaki, Author of Rich Dad, Poor Dad and The Cash Flow Quadrant.
Closely tied to the above point, beware of scams. Owing to the panic and fear currently prevailing, some people will take advantage and come up with scam investments and opportunities to prey on this fear. Be on the lookout. Opportunities that provide astronomical returns, have unclear or untested business models or guarantee sustained cash payments without considering the risk are to be approached with a slow hand.
4. Seek financial knowledge. Countless hours were spent in class learning about how bunsen burners work and how the Ngoni migrated yet these currently have little application in our daily lives. Furthermore, many seek further studies in order to advance their careers in a bid to increase on their income earning potential. It is however absurd that the critical aspect of education on money; the one thing that has played and continues a key role in our daily lives is never taught. Financial education teaches this and provides the knowledge and skills for us to better manage our personal and business finances.
Read books on investment and wealth growth for the betterment of your overall finances. Some quick reading recommendations include; The Richest Man in Babylon by George Clason, Rich Dad, Poor Dad and Cashflow Quadrant by Robert Kiyosaki. These books have great information on the building blocks of financial freedom. Straight Forward Financial Growth, written by Moses Mukisa, is another insightful book to chart a path towards financial improvement. These books are available both online and in bookshops and provide a great investment in improving yourself.
"An investment in knowledge pays the best..." - Benjamin Franklin
As I conclude, I would like to share some additional information that is worth sharing.
1. NSSF Funds. Your savings held with NSSF are for your retirement and social security only i.e. death, permanent disability and one lucky one; permanent emigration from Uganda. These savings and the interest earned will not be extended to you for sustenance during this Covid-19 time. NSSF is governed by The NSSF Act that clearly specifies the purpose of the fund, benefits provided and criteria for payout. Tough times and economic uncertainty are unfortunately not among these.
2. Your bank deposits are safe. There is talk of possible bank failure in Uganda due to mounting loan arrears brought about by projected business failure across the major sectors of the economy. It is important to note that banks have robust systems in place to keep them afloat.
In the unfortunate instance of bank closure, all deposits (savings, current and fixed deposits) held in bank accounts in commercial banks, credit institutions and microfinance deposit taking institutions regulated by Bank of Uganda (BOU) are insured and protected up to UGX 10 Million under the Deposit Protection Fund managed by BOU. This money is expected to be paid within 90 days of the bank closure.
In summary, in case of bank closure, every bank depositor will be refunded up to a maximum of UGX 10 Million depending on your bank balance at the time of closure.
3. Write a will. Covid-19 has reminded us that we are all mortal and can all die at any point. Its important for each of us to write a will stipulating how our assets are to be shared and who will benefit. Remember if you don’t do this, the government will allocate these on your behalf when your dead.
4. Bankruptcy. If you are totally unable to service your debts or financial obligations, there is bankruptcy protection. Seek legal guidance on this from a reputable lawyer.
The article was shared by David Mugabe, a personal finance advisor during a presentation to the Rotary Club of Acacia Sunset. He is available for financial consultation on appointment by email to [email protected].
