We all work very hard for little pay and still make conscious efforts to save up money for rainy days; a wise thing to do by the way. However, for those who think saving is all there is to financial management, you couldn’t be farther from the truth. What if I told you that something is “stealing” your savings right now? Indeed, your savings are being stolen! And not only should this worry you, it should also spur you to start investing today.
Imagine this Scenario: 24-year-old Tunde had recently landed a job with one of Nigeria’s tier-one banks. With his N200,000 per month salary, he is regarded as the latest big boy in town by his yet-to-be-employed friends. But Tunde will soon realise that his salary is nothing after all. He has expenses to take care of and this makes saving very difficult.
Let’s assume he manages to consistently save up N42, 000 from his salary every month, in two years, he’d have about N1 million in his savings account. Normally, this amount should accord the young man some level of financial security. After all, a million naira can accomplish quite a lot when it’s handy. But not in Nigeria though, because like I mentioned earlier, there’s this thing that specialises in “stealing” people’s savings and rendering them worthless overtime.
Something is stealing your money!
Indeed, something is stealing your savings and it is called inflation. That is one word nobody wants to hear, especially those who understand the real damage it can cause. One of those people is financial expert, Damilola Alonge, who recently lamented how “inflation is your big enemy.” Writing on LinkedIn, Alonge painted a really grim picture of how disastrous inflation can be with the following words:
“If you had N1 million in 2008 and it wasn’t invested, and the average inflation rate was 12% over the ten year period, your N1 million has now become N321, 973.24 in value. Meaning, your N1 million is now worth about N321k today.”
The unseen robber: You probably never saw that coming! Little wonder Margaret Thatcher defined inflation as “the unseen robber” which devalues our savings and our lives.
In Nigeria where the inflation rate is “stubbornly high” as Alonge puts it, it becomes especially difficult to make any meaningful financial planning dependent entirely on savings. Nothing else could ever be more frustrating for savers. It is even more frustrating than your bank folding up.
Let’s briefly go back to Tunde for a second. Imagine he was planning to use his savings for a project only to discover that it’s worthless, can you imagine how bad he’d feel? Imagine all the times he denied himself of immediate gratification just to save up, only for inflation to erode the value of his savings!
But there’s a way out
This is where investing becomes important. According to Alonge, a careful mix of assets in your investment portfolio could help you mitigate the unforeseen impact of Nigeria’s inflation. Now, depending on how deep your pockets are, the following investment plans can be considered:
Real Estate Investment Trusts: According to Investopedia, real estate equity can hedge against inflation by as much 69%. This is not surprising. After all, real estate assets are known to keep appreciating in value overtime, the same time inflation could very easily erode the value of all that money you are accumulating in a bank account.
Note that Real Estate Investment Trusts (REITs) are trusts or corporations that specialise in pooling capital from different investors for the purpose of purchasing and managing properties/mortgage loans. Look out for the company that offers the best REITs and start your investment today.
Select high-yield mutual funds: Investment experts will always advise that mutual funds make for a good investment plan that can withstand inflation. Not only are they diversified in nature (in that they are a combination of funds from different sectors of the economy), they also come with the advantage of professional management. You can rest assured that your investment will be professionally managed by qualified individuals.
Invest in Stocks and Bonds: A stock/bond portfolio can beat inflation by 69%. So, invest in high-yield bonds, high coupon bonds, and even floating rate bonds, if such are available. Also, invest in stocks that are known for paying high dividends. There are a couple of such that are listed on the Nigerian Stock Exchange.
Buy Gold and other commodities: Gold is also known for beating inflation. So, buy some of it if you can afford to. You can also consider buying a broad range of other commodities through ETFs. Vetiva Asset Management Company can help you in this regard.
In conclusion, never allow inflation to erode your hard-earned money. Savings are good, but you must save strategically and invest wisely. Let this serve as your eye-opener, just in case you didn’t already know.
5C’s of creditworthiness: What lenders, Investors look for in a business plan
Business owners need to be aware of the criteria lenders and investors use when evaluating the creditworthiness of entrepreneurs seeking financing.
Banks usually are not a new venture’s sole source of capital because a bank’s return is limited by the interest rate it negotiates, but its risk could be the entire amount of the loan if the new business fails. Once a business is operational and has an established financial track record, banks become a regular source of financing.
For this reason, the small business owner needs to be aware of the criteria lenders and investors use when evaluating the creditworthiness of entrepreneurs seeking financing.
Will the business that an entrepreneur actually creates look exactly like the company described in the business plan? Of course, not.
The real value in preparing a business plan is not so much in the finished document itself but in the process it goes through – a process in which the entrepreneur learns how to compete successfully in the marketplace. In addition, a solid plan is essential to raising the capital needed to start a business; lenders and investors demand it.
Lenders and investors refer to these criteria as the five C’s of credit.
1. Capital: A small business must have a stable income base before any lender is willing to grant a loan. Otherwise, the lender would not be making, in effect, a capital investment in the business. Most banks refuse to make loans that are capital investment because the potential for return on the investment is limited strictly on the interest on the loan, and the potential loss would probably exceed the reward. In addition, the most common reasons that banks give for rejecting small business loan applications are undercapitalization or too much debt. Banks expect a small company to have an equity base investment by the owner(s) that will help support the venture during times of financial strain, which are common during the start-up and growth phases of a business. Lenders and investors see capital as a risk-sharing strategy with entrepreneurs.
2. Capacity: A synonym for capital is cash flow. Lenders and investors must be convinced of the firm’s ability to meet its regular financial obligation and to repay loans, and that takes cash. More small businesses fail from lack of cash than from lack of profit. It is possible for a company to be showing a profit and still have no cash – that is, to be bankrupt. Lenders expect small businesses to pass the test of liquidity, especially for short term loans. Potential lenders and investors examine closely a small company’s cash flow position to decide whether it has the capacity necessary to survive until it can sustain itself.
3. Collateral: Collateral includes any asset an entrepreneur pledges to a lender as security for repayment of a loan. If the company defaults on a loan, the lender has the right to sell the collateral and use the proceeds to satisfy the loan. Typically, banks make much unsecured loans (those not backed up by collateral) to business start-ups. Bankers view the entrepreneurs’ willingness to pledge collateral (personal or business assets) as an indication of their dedication to making the venture a success. A sound business plan can improve a banker’s attitude towards venture.
4. Character: Before extending a loan or making an investment in a small business, lenders and investors must be satisfied with an entrepreneur’s character. The evaluation of character frequently is based on intangible factors such as honesty, integrity, competence, polish, determination, intelligence, and ability. Although the qualities judged are abstract, this evaluation plays a critical role in the decision to put money into a business or not.
5. Conditions: The conditions surrounding a funding request also affects an entrepreneur’s chances of receiving financing. Lenders and investors consider factors relating to a business’ operation such as potential growth in the market, competition, location, strength, weakness, opportunities and threats. Another important condition influencing the banks is the shape of the overall economy, including interest rate levels, inflation rate, and demand for money. Although these factors are beyond an entrepreneur’s control, they still are an important component in a banker’s decision.
The higher a smaller business scores on the five C’s, the greater its chances of receiving a loan.
Written by Chukwuma Aguwa
Don’t be fooled by COVID-related scams
Always consult the institution in charge of health-related matters to confirm any fishy information you come across.
The nature of and the manifestation of the Covid-19 disease is such that there’s only a little time available to remedy the situation before it gets chronic. Although the infection begins by exhibiting mild symptoms, if you do nothing in a short time, it could lead to death in a matter of days.
This whole picture has caused many to become desperate about Covid-related issues, launching into panic mode at the sight of any information. As a result, such people are not far away from falling for fraudsters.
With the different kinds of news flying around, you mustn’t be fooled by Covid-related scams.
The Coronavirus threatens the health of millions of people around the world daily, also killing thousands along the way. To curb the spread and remedy the situation, bodies like the CDC, WHO, and every country’s local health organisation like the NCDC, frequently circulate information around communities. However, it has also led to fraudsters taking advantage to provide fake news, and even asking for donations.
Each day, there seems to be a new account or NGO asking for donations into the health sector, and though some are legit, many are just fraudsters posing to take advantage of innocent citizens. So far, numerous complaints about scams have been recorded, especially with people who are looking to support the health cause in any way they can.
Channels used for COVID-related scams
There are three major ways scammers take advantage of the haziness of the situation to dupe people. To start with, they appeal to the emotions of humans, who see the high death toll and suffering. As a result of what is happening, people have been willing to donate funds for medical supplies, isolation centres, and financial compensation for medical workers.
Scammers take advantage of this by posing as charity organisations and solicit for funds. Most times, as soon as their target is met, they clear their footprint without leaving a trace behind.
Another way they scam people is by manufacturing and selling fake or low-quality health products. Everyone wants to get their hands on a cure, or something that can at least protect them from the virus, and scammers are meeting their needs by providing just that.
The World Health Organization currently approves only one vaccine, and any other thing outside it is outrightly fake or just a supplement that will help your body. Currently, only the Pfizer vaccine is clinically tested and approved to work. Be sure to not throw your money in the wind by purchasing some of these fake drugs around.
Lastly, scammers create systems to extract a patient’s personal information, thereby having access to the person’s true identity. It could be in the simple form of opening a registration portal where you supply all your details.
Therefore, only give information to approved bodies and not any random online site that appears legit. These fraudulent individuals can do a lot of damage to your identity. Stay vigilant, only communicate with approved bodies, and always ask questions if you are not sure or suspect foul play.
The place of electronics in COVID-related scams
These fraudsters usually reach out to you through the digital sphere. Hence, watch out for cold calls, text messages, or emails requesting donations to certain bodies. The best way to confirm the legitimacy of such a message is to visit the organisation’s official website in a different browser. Never follow the link in the mail or text directly, as it can be easily embedded with spyware. Therefore, a single click could see them extract all your personal information, including bank details.
Also, please stay away from those who claim to have a cure, and accompany it with testimonies of people who have used it. They are low graders desperate for your money. Vet them by searching online and see what people are saying. In all, always look out for suspicious messages, and opt out if you are sceptical.
In a nutshell, you should not believe any cure, vaccine or supplement that the World Health Organization does not approve of.
The government or legit health institutions do not cold call citizens to request donations or coerce them into making one. If you receive a call out of the blues, chances are it’s a scam, which is why they mostly try to hurry you to donate before you realise it. Always consult the institution in charge of health-related matters to confirm any fishy information you come across.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Seplat falls into a loss in FY 2020
- 2020 FY Results: Cornerstone Insurance Plc reports a 61.1% decline in profit
- Ellah Lakes increases operating expenses by 33.36% in HY 2020
- 2020 FY Results: Nigerian Breweries reports a 54.3% decline in profits in 2020
- Abbey Mortgage Bank projects N51.08 million profit in Q2 2020.