We all crave a level of certainty and predictability in our lives. This period with the coronavirus pandemic can have an effect on your personal finances. These clearly are uncertain times and it is easy to become anxious. We cannot be in control of everything that happens around us, but what we can and should do, is to be proactive about taking charge of our personal as well as our financial lives.
Health is wealth.
The Coronavirus has shown what an interdependent world we live in and in such a graphic way. We all have an individual responsibility to follow the clear guidelines set by the Ministry of Health. Wash hands frequently, keep a social distance and avoid crowds, practice self-isolation if necessary, and call the hotlines if you need help. These are critical measures that we do have some control over.
Whilst you must stay informed, try not to be overwhelmed by all that you hear including the fake news. Keep abreast of the evolving situation as it affects us all directly. To break the cycle of this deadly virus, each one of us has a role to play. We must be disciplined and considerate.
Here are a few tips regarding the coronavirus and your personal finances
Cut back on your spending
During times of crisis such as this, we simply need to cut back on spending and be frugal and disciplined. This is where good old budgeting comes into play. Track your expenses and prune down those indulgencies for now. Develop a strict spending plan or budget for essentials so that you are accountable for all your spending.
Do you have an Emergency Fund?
An emergency fund provides you with a cushion during emergency situations. Job security will be affected as some companies may have to cut salaries, reduce work hours or lay off staff due to falling demand as people stay away from public places.
Financial experts recommend having a financial safety net of six to twelve months’ worth of basic living expenses. Ask yourself; how would you cope if you lost a significant chunk or all of your monthly income? Could you live off your savings for 6 months? For many people, this will sound absurd but just start by saving enough to cover one month’s living expenses and then build up from there bit by bit. One of the effects of the coronavirus pandemic is the urgent need to have your personal finance in order.
Don’t panic buy
Panicking and taking drastic action without careful thought will only make your situation worse. Keep in mind that this crisis is affecting everyone and not only you. This is not the time to stock up on things you don’t need; it only creates false scarcity and increases your costs even further in an environment of high inflation. Of course, there are some essentials you do need but not to last a year!
Don’t panic sell
Usually, when the market moves cause you to panic or overreact, it may well be that your risk tolerance level does not match your investment choices. Risk tolerance and risk capacity change over time and it is important to know how much risk you can absorb. If the current market volatility is causing you sleepless nights, you do need to review your investment portfolio and consider rebalancing if necessary. Remember that by selling in a bear market and amid so much uncertainty, you only crystallise your losses.
The question to ask before investing is why are you investing in the first place? Bear in mind that stock market investments require a long-term perspective with an investment goal in mind. In the short term, the market can be volatile.
Diversify your investments
If all your money is in one asset class, it is almost impossible to mitigate risk. The coronavirus pandemic has highlighted the need for your personal finances to be well diversified. Diversification is one of the best ways to manage risk. With a well-diversified investment portfolio including a variety of asset classes including stocks, bonds, cash, real estate, business interests etc. that take into consideration your investment goals, you will be in a better position to ride the market volatility without being forced to sell at a loss.
Diversification also involves investing across geographies and currencies so that you reduce foreign exchange risk in at least part of your portfolio. Mutual funds offer easy access to the stock market as well as a variety of funds, professional management, and a diversified portfolio in both local and foreign currency. Always think long term in your investment strategy.
Uncertain times usually present opportunities. A market decline is a good time to take advantage of falling stock prices. If anything, this should be considered an opportunity to invest in strong companies at significant discounts. Sadly, people do the exact opposite and sell at painful losses. Before investing, seek professional advice; you do however need to develop your own knowledge, as ultimately you are responsible for your money.
Invest in yourself
When last did you invest in yourself? Don’t wait for your employer to develop you; indeed, many companies have cut back on training.
Fortunately, there is so much information and great material online; some of it free of charge.
If you find yourself at home for an extended period, use the time efficiently. Consider finding an appropriate learning opportunity so that at the end of this period, you come back even better equipped.
Working from home, where feasible, saves your workforce considerable sums in transport costs. It also reduces stress as they avoid the congested rush hour commute and keeps them save from the risks associated with crowded public transport. Once there are clear KPIs, deadlines and targets in place, this may be a useful solution at this time if appropriate for your business model.
Stay in touch
Invest in your network. Networking provides you with new ideas, opportunities, and contacts. Make those calls; networking need not be physical. Ideally, you should be networking all year round and not only when you need something. These time-tested strategies will hold you in good stead during times of uncertainty and when things get back to normal.
Don’t get derailed by all the bad news at home and abroad. Stay focused and approach your personal finances with clarity. Try to look on the bright side; this could be a time to plan to spend more time at home with loved ones, or alone doing the things that you haven’t had much time for; reading, resting, playing games, reflecting, writing.
These challenging times will end, but even before they do, you can take deliberate steps to come out stronger at the other end.
Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank; practical insights to create greater awareness and understanding of personal finance.
For more personal finance tips, contact Nimi —