One of my major goals for Nairametrics is to help simplify financial jargon and terminologies. However, as one swings from personal finance to investing and back again it is often inevitable that I use certain terms that may seem alien to a lot of my readers. In fact, I have received several emails from people asking that I simplify them. Based on this, I have decided to help people understand the meaning of some of the terms often used by myself and other analysts on this website.
Thankfully, I need not write them over again as the Security and Exchange Commission of Nigeria compiled a list of terms that are often used in the Nigerian financial space. Without wasting much of your time, here they are in alphabetical order as culled from SEC.
Interest which has been accumulated on a debt instrument since the last interest payment date.
The purchase of controlling equity interest in a company by another company. Acquisition may be financed by cash or the issuance of securities.
A stock market with high transaction volumes. Such markets usually display high liquidity.
Subsequent issue of securities to the public or to a select group of investors after an initial (the first) offering of securities. It provides additional funds to a company and enlarges its outstanding shares.
￼in the securities of a company in the period immediately following a new issue.
The allocation of securities among various subscribers to a security issue. In Nigeria, preference is given to small subscribers in the allotment of securities in line with the widespread share ownership philosophy of the Federal Government.
American Depository Receipts (ADR)
￼A method of accessing United States’ capital market by foreign issuers. Under the system, the certificate relating to a security issue is registered in the name of and held by a US entity usually a bank, which then issues receipts to investors (subscribers). These receipts are then traded normally in the market.
The installment re-payment of a loan by a debtor over the life span of the loan. This is usually by creating a sinking fund account into which the debtor would
￼make periodic payment which would then be utilized to redeem the loan. Amortization in accounting parlance, however, refers to the gradual reduction of the book value of an intangible asset until completely written-off. Akin to depreciation except that depreciation is used in respect of tangible assets.
A document published yearly by a company and distributed to its shareholders showing its operations including financial performance during the fiscal year. The report, which is mandatory for public companies, contains the financial statements, auditors report, chairman’s statement and directors’ report, among others.
An agreed sum payable to an investor at specified intervals over a period of time or perpetuity, as in the case of interest payment in annuity bonds.
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￼A Legislation which is aimed at preventing business combinations which could create monopolies or restrain competition.
An upward movement in the price of a security or in the value of assets.
The purchase of a financial instrument or commodity in one market and the sale of it simultaneously in another market in order to profit from existing price differentials in both markets. In other word, the arbitrage takes advantage of two different price quotations for the same instrument or commodity in different markets or in the same market as with rights trading. He buys in the market with the lower quotation and sells where it is higher.
￼The lowest price offered for a security on an exchange or over-the-counter market. It denotes the lowest price an investor is willing to sell a security at a particular time. It is also called the offer price.
An item of commercial or exchange value owned by a company, individual, government, etc. It also refers to the culmination of all the items accompany owns — total assets.
Investment in a variety of financial instruments in order to spread risk
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The percentage distribution of assets held by an individual or corporate entity under the various categories of assets such as equities, debt instruments, cash, and short-term instruments.
The sale of a company’s assets or other component parts (e.g. subsidiaries) bit by bit for profit.
A market where orders to buy or sell financial instruments or commodities are effected under given rules. Trade is usually sealed at the highest bid price and the lowest offer price. The auction system in the securities market, however, differs from other forms of auction markets as there are several buyers and sellers represented by their stockbrokers, unlike the latter type of auction where just one seller and several buyers participate.
Authorised Share Capital
The permissible number of shares a company may issue as stated in its Memorandum and Articles of Association. The authorised shares are subject to change only by a resolution at a general meeting of shareholders.
One who expects a general depreciation in the value of securities or commodities or in a particular security or commodity traded on an exchange or over -the – counter.
A general decline in prices of securities or commodities in a stock or commodity market.
A security which does not carry (indicate) the name of the owner in the books of the issuer or on the certificate. Any one in possession of it (bearer) is, therefore, presumed to be the owner.
Real owner of a security who may, for convenience or safety, register the security in the name of a nominee such as a bank, trustee or portfolio manager.
Best Effort Underwriting
An underwriting agreement in which the underwriter has no obligation to purchase the securities from the issuer but merely uses his ‘best efforts” to market and distribute the securities. All unsold securities are subsequently returned to the issuer. An underwriter may prefer this type of arrangement when the issuer is considered unseasoned.
The maximum price investors are prepared to pay for a security on the stock exchange at a given point in time.
￼Large holdings of the shares of a company by an investor usually by an institutional investor or corporate body.
Trading in large quantities of a security. The size of transactions regarded as ‘;block’; is usually determined by a stock exchange and varies from one exchange to another exchange.
Companies which are widely known for good financial performance, product acceptance, high-quality management and regular dividend payment. Owing to these features, blue chips securities are usually in high demand.
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Interest-bearing securities (i.e. debt securities) issued by corporate entities and governments. However, in Nigeria, Federal Government long-dated instruments are generally not called bonds but stock.
Shares distributed free to shareholders out of a company’s reserve in proportion to the number of shares held, e.g. shareholders could receive one new share for every two held. Such shares add to the shareholder’s holdings as well as the company’s outstanding shares (paid-up capital) but does not generate additional fund for the company. It is also called share dividend because it is a portion of post tax profit that is declared by a company and distributed to ￼shareholder in form of shares in proportion to the number of shares already held.
Book Entry System
A system which eliminates the issuance of certificates to evidence ownership of securities but in which changes are effected by mere entries usually in a computer.
The value of an asset as shown in a company’;s balance sheet. The book value usually differs, sometimes considerably, from the market value which is the current price consumers/investors are willing to pay for an asset.
A short-term credit facility to an individual, corporate body or government as an interim measure to meet planned expenditure needs while expecting a medium to long-term fund. 35 Broker (See Stockbroker).
An odd amount, such as sixty-nine shares which is not a normal market quantity. (see odd lot).
A financial intermediary who combines the functions of a stock- broker and a ￼securities dealer.
Fee charged by a stockbroker for services rendered in the course of buying and selling securities on behalf of a client.
One who expects a general rise in the value of securities or commodities or in a particular security or commodity.
Stock or commodity market witnessing a general rise in price.
The provisions in interest-bearing securities, giving the issuer the option to redeem the security at a predetermined price before the date of maturity.
The right but not the obligation of an investor to buy a specified quantity of a financial instrument at a predetermined price and period.
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A system of trading in some stock exchanges where stockbrokers assemble at the trading floor at designated times to bid or make offers as the list of securities is read aloud i. e. as the board is called.
Gains made at the disposal (sale) of securities by an investor. It is the difference between the price at which the securities were bought and the price at which they were sold. When such difference is positive, it is said to be a capital gain. When the difference is negative, this is a capital loss.
Financial market which trades in medium to long-term financial instruments ￼(stocks and bonds) with maturity in excess of one year. It is a network of participants, instruments and facilities which function basically to facilitate efficiently, the flow of savings into long-term investment for socio-economic development.
The various components of a company’s long-term capital such as debentures, ordinary and preference shares.
A new allotment of shares made in proportion to existing shares out of accumulated reserves. Usually known as’;scrip’; or a ‘;bonus’; issue. Such issues only increase the outstanding shares but add nothing to the assets of a company. (See bonus issues).
An account maintained by a stockbroker for cash settlement of transactions.
The portion of after-tax profit that is declared by a company and distributed to shareholders in proportion to their holdings in the company.
Payment for securities transactions in the secondary market in cash as distinct from normal account settlement.
A mechanism which temporarily stops trading in US stock and commodity exchanges when the price index drops by a specified point within a specified period. The device was introduced following the 1987 stock market crash.
An organization, usually a subsidiary or an arm of a futures exchange which ￼stands as a counter party in every futures transaction in order to guarantee performance of the contract. The clearing house thus registers, matches, monitors and settles every transaction.
Procedure put in place by a securities exchange to compare trading details between stockbrokers before settlement takes place.
Closed-End Investment Company
An investment company quoted on a securities exchange which pools funds from the public through the flotation of equities, and invests the monies usually in listed securities. The securities of the company are thus tradeable like any other securities on an exchange. Unlike the open-end funds (unit trust or mutual funds), closed-end companies have fixed capital and thus do not stand ready to redeem or issue additional securities. They are sometimes referred to as investment trust company.
Final prices at the close of transaction on an exchange.
Financial or physical assets pledged by a borrower as a guarantee for the repayment of a loan or bond in the event of a default
Completion Board Meeting
The meeting of the board of directors of a company making a security offering with all the parties to the issue such as issuing house, solicitors, accountants and registrars. It is during this meeting that all documents relating to the issue are signed by the directors and the parties. It is only after the completion board meeting and the lodgment of copies of the signed documents with the SEC that the securities can be distributed to the public.
A company having a group of subsidiaries engaged in unrelated activities.
A business combination in which the integrating companies are in unrelated lines of business.
Consolidation of Companies
A merger of two or more companies in which an entirely new company evolves to take over the assets and liabilities of the merging companies.
Securities listings or offerings by an entity (corporate or government) in a country or countries other than the home country.
A security which carries a provision giving the holder and or the issuer the option to turn the security into another class of security of the issuer at a later date e.g. to convert a debt instrument into equity of the company.
￼Cost of Raising Capital
The price paid by an issuer of securities to raise funds in the capital market. There are usually several cost components borne by the issuer, including fees to various advisers, issuing houses, other operators, and regulatory authorities. Also included are publicity, printing and distribution expenses.
An individual or institution which is party to a contract.
The probability that a party to an agreement (counterparty) would default on his obligation.
The rate of interest paid by a corporate entity or a government on its bond (debt) issue. The coupon rate could either be fixed or floating.
A provision which spells out the dos and don’ts of the debtor in a trust deed for the purposes of protecting the creditors of a company or government in a loan arrangement.
Cum Dividend With dividend
The buyer of an equity cum dividend is entitled to the dividend already declared or to be declared by the company whose security was bought.
￼Cum Rights With rights
A buyer of a security marked cum rights is entitled to participate in an impending rights issue of the company. 65 Cumulative Preference Shares having a provision which allows dividends not paid in a particular year or period to be accumulated and carried forward to a later date.
￼Short-term assets of a company such as cash and other instruments which are convertible into cash within one year. These include inventory, money market instruments, etc.
Obligations of a company expected to be settled by it within one year.
The income earned on an investment within a year, expressed as a percentage of the present value of the investment. For equity, it is derived by dividing the annual dividend by the market price and for bonds, by dividing the annual interest (income) by the market price of the investment.
An institution which holds for safe keeping, for clients, documents and assets such as securities. In many instances, (in respect of securities), custodians are ￼given powers to vote and exercise other rights including collection of investment income on behalf of their clients.
A financial intermediary who buys or sells securities for his own account and not on behalf of clients as stockbrokers do. A dealer thus acts as a principal in a security transaction. A dealer resells the securities to clients at approved margin above the transaction price. The margin is what the dealer gets since he does not earn a commission.
A member of a stock exchange authorized to buy and sell securities on behalf of the public or for their own account.
Interest-bearing securities of corporate bodies representing indebtedness by the issuer to subscribers. The issuer pays subscribers interest at stated intervals and redeems the principal on maturity.
The issuance of debt-securities by a company to raise funds to finance a specific project, working capital and/or retire current indebtedness. A government could also issue debt securities to finance specific projects. Security: See debt instruments.
Settlement of interest and principal of a loan as they fall due within a period usually a year.
Indicates the extend to which shareholders’ fund can absorb creditors’ claims in the event of a company’s liquidation; derived by dividing the long-term debt of a company by its equity capital (shareholders’ fund).
The non-performance of the terms of a bond such as the inability of a company or government to meet its financial obligations e.g. the payment of interest or principal to its bondholders. (creditors).
The removal of a security from the official list of a stock exchange resulting usually from the failure of a company to comply with post-listing requirements, maturity of debt instruments or merger between quoted companies. Once delisted, the security ceases to be traded on the exchange.
An institution which provides custodial services by holding, for safe keeping, documents relating to an investment in securities or other assets (see also custodian).
Interest-bearing securities of governments and corporate bodies. Interest is paid to creditors at stated intervals throughout the life of the security, and on maturity, the debt (principal) is redeemed.
A decline in the value of a security or an asset.
Relaxation or removal of economic and legal controls (restrictions) in a country essentially to promote competition, efficiency, and ultimately foster socio- economic progress.
A financial instrument whose value is derived from an underlying instrument or product such as a security (e.g. stock index) or commodity (e.g. cocoa).
￼Development Loan Stock
Long-term, interest-bearing securities of the Federal Government of Nigeria traded on the Stock Exchange.
A requirement by some securities commissions that issuers carry on the front cover page of a prospectus, a clause which states that the commission has not approved (endorsed) the merit of the securities on offer to the public. Some markets also carry a liability clause stating the liabilities for providing false and misleading information in a prospectus or any vending document.
The release of information by a company or government to existing and prospective investors and other members of the public, about its activities. The securities laws require that any information which is material to an offer of security or to investment in the secondary market must be disclosed to the public.
Information which is required of issuers by regulatory agencies such as securities commissions and stock exchanges to be provided in an offer document or released from time to time to shareholders and the public.
When the market price of a security is below the par value, the security is said to be trading at a discount. Discount also means transaction price below the market price.
A client account kept by a broker-dealer carrying the mandate of the client to buy and sell securities on his behalf without his (client’s) prior consent but for his notification after the transaction has been effected.
The disposal of all or a portion of an equity interest in a company. The term is usually used in respect of relatively large disposal.
The number of times the net profit of a company ‘covers’ the dividend declared. Fast-growing companies, which need capital for reinvestment, are likely to have higher dividend cover than more mature ones.
A cheque issued by a company to its shareholders for the payment of dividends.
The ratio of current dividend to the market price of a security.
The right to buy and sell a security at an agreed price within an agreed period which is usually not more than three months. 99 Dual Capacity When a securities firm acts both as a stockbroker (i.e. agent to its clients) and market- maker (i.e. dealer or principal trading for its account).
The listing of a security on more than one stock exchange. This usually improves the liquidity of the security and could encourage arbitrage trading. 98 Due Date The date when interest on a debt instrument or the principal falls due for payment to creditors/investors.
Earnings Per Share
Gross profit of a company (less taxes and obligations to preference shares and bond holders), divided by the company’s paid-up capital. It shows how much a company had earned on its ordinary shares.
Efficient Market Hypothesis
￼A hypothesis which states that the price of a security is a reflection of all available information about it and thus represents its true value. It states also that the current price of a security is the most appropriate measure of future returns.
Capital held by individuals, corporate bodies and sometimes governments in a company. Also called ordinary shares.
Monies supplied to a company by persons and institutions having ownership interest in it.
The issuance of shares to generate money to finance a company’s planned projects and/or working capital.
An international bond issue sold in countries other than the one in whose currency the instrument is denominated e.g. US dollar-denominated bond sold outside the United States.
Ex-Dividend Without dividend
The buyer of a security marked ex-dividend will not be entitled to receive current or impending dividend of the company whose securities were bought.
Derivative products which are traded on a securities or futures exchange. 108 Exercise Price The price at which the underlying securities of an option can be bought or sold by the holder of the option during a stated period. 109 Expiration Date The date of maturity of an option contract.
Extra-Ordinary General Meeting
￼A special meeting of the shareholders of a company ordered by the board of directors to discuss specific issues of concern to the company.
Insurance policy taken by an organization against losses which may arise as a result of dishonest activities of employees.
The last dividend distribution during a company’s fiscal year. However, some companies pay dividend only once in a year.
A future contract whose underlying product is a financial instrument such as stock, bond, currency, treasury bill or certificate.
(i) A financial product such as stock, bonds, treasury bill, and certificate, commercial paper and bankers’ acceptances which is created to facilitate the flow of funds from surplus to deficit economic units.
(ii) Any document which denotes ownership of a financial asset or evidences credit to a company or government.
An institution such as a bank, stock broking firm or issuing house, which mobilizes, or facilitates the mobilization of funds from surplus to deficit economic units.
The proportion of debt to equity in a company’s capital structure. A company is highly leveraged when the proportion of debt is higher than equity.
A market which provides a mechanism for the efficient mobilization of funds from the surplus economic units (suppliers of funds) to the deficit economic units (users of funds). The market is made up of two principal segments -the money and the capital markets.
￼Funds invested by a company in fixed assets such as plants, machineries and equipments.
Fixed Rate Securities
A debt security whose interest rate does not vary (fluctuate) but is fixed throughout the life of the instrument.
￼Monies which are taken out of a country as a result of instability in the political, economic or social environment.
Floating Rate Note
Debt instruments with variable interest rates.
Public offering of new securities by a company or government.
Bond issued by a government or company in a foreign country and denominated in that (foreign) country’s currency. Usually, the issuer does so to take advantage of more favourable market conditions in the country of issue. In the international capital market, certain coinages linked to the country of issue have developed to describe some foreign bonds. These include yankee bonds (foreign bonds issued in the U.S.), Samurai bonds (Japan) and Bulldog bonds (United Kingdom).
Similar to a futures contract but neither traded on an exchange nor carry standardized terms. A forward contract can thus be customized to suit the special needs of the parties to the contract.
￼Investment income on which tax has already been paid (usually deducted at source) and thus exempted from additional tax by the investor. Income on unit trust is franked in many countries.
The sale or purchase of securities by a broker-dealer for his account ahead of client’s order and based on privileged information available to the broker-dealer about the client’s order flow.
The provision of comprehensive information and material facts relevant to an issue of securities to the public to enable rational and informed investment decision.
Fully Paid-up Capital (Shares)
The portion of a company’s authorized share capital that has been issued and paid for by shareholders.
An agreement to buy or sell a specified quantity of a financial instrument or commodity at a price and time agreed by the parties. Futures, basically developed to hedge against adverse fluctuations in the prices of financial instruments or commodities, and have also become important speculative instruments. Unlike forward contracts, futures contracts are standardized and ￼traded on an exchange.
An organized market for trading in futures contracts.
Securities issued by governments. They are usually considered high-grade and safe investment owing to the almost zero probability of default on interest and principal payments.
A bond issue offered for subscription simultaneously in many jurisdictions.
Global Depository Receipt
A means of accessing the international capital market through the issuance of depository receipts which are traded in major stock markets such as the International Stock. Exchange, London, and the over-the-counter market in the ￼U.S.
A security issue – equity or debt which is offered simultaneously in many countries. The equities could be new issues or existing securities such as privatization issues.
The process of conversion of corporate status from private liability company (private ownership) to public limited liability company (public ownership). It is also used in relation to a company offering its securities to the public for the first time (IPO).
The amount taken off the value of securities for the purpose of calculating the net capital of broker/dealers. A number of criteria such as market risk, maturity ￼(for debt instruments) and type of security would usually be considered in the determination of the most appropriate haircut.
Mutual funds that employ hedging techniques to minimize risk.
A strategy used by business concerns and investors to reduce the risk of adverse price fluctuation in the prices of Commodities or financial instruments.
The highest movement of a stock index or price of a security during a given period e.g. a day, month, year, etc. Lows are the opposite of highs.
Historic Cost Accounting
The traditional method of accounting for profit and other balance sheet figures, making no allowance for inflation as in current cost ac counting. Stock is valued ￼at its original cost, not its current replacement cost. Fixed assets are entered at original cost, minus a depreciation figure based on that cost.
Holders of Record
The list of shareholders as shown on a company’s register of shareholders at a given date. The distribution of dividends, annual reports, etc. are restricted to holders of record. In Nigeria, these are members of a public company at the close of the company’s register on a given date.
A company which owns sufficient equity capital in another company and thus exercises control over the latter.
A merger between companies in similar lines of business.
A public offering of securities with exceedingly high demand.
Highly volatile foreign investment capital. It refers to monies brought into a country by investors taking advantage of high returns such as favourable interest rates and stock market return, but which are quickly moved out as fundamentals change or as returns in other jurisdictions become more favourable. These are thus, essentially, flows of short duration.
The pledging of securities as collateral to purchase other securities on a margin account.
Securities, the interest of which is payable only out of profit.
A formal agreement between issuers of securities and bondholders (creditors) stating the terms and conditions of payment such as the interest rate, interest payment and maturity dates.
Statistical data computed to measure changes in the value of commodities, securities, etc. An index is derived from the prices of all or some market constituents, usually expressed in percentage change from the base period. Indices are important measures of the performance of an economy or a financial market.
Initial Public Offering (IPO)
The first public offering of securities by a corporate entity.
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Principal officers and directors of a company and those with business relationship with it such as auditors, reporting accountants and lawyers as well as those holding a specified percentage (in most countries 5 per cent or above) of the outstanding shares of a company.
Trading in the securities of a quoted company based on unpublished price- sensitive information of the company, to make a profit or minimize loss.
Institutions such as insurance companies, pension funds, investment trusts and unit trusts which, by virtue of their activities, pool substantial funds with a good percentage of the monies invested in the securities ‘market. In some stock markets, over 50 per cent of equities is held by this class of investors while up to 70 per cent of trading is conducted on their behalf. They are, therefore, considered important players in stock markets.
This is made at regular intervals by issuers of debt securities and other borrowers to lenders (creditors) for parting with their funds.
Dividend declared and distributed by a company to its shareholders prior to the determination of final profit position for the financial year.
The opening up of a country’s capital market to foreign participation by removal of entry and exit barriers, and permission to nationals to freely participate in foreign capital markets.
A market operator who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, ￼purchasing or selling securities or who for compensation and as part of a regular business, issues and publishes analyses or reports concerning securities.
A financial institution which performs a variety of capital market and corporate finance functions for clients. Such functions usually include assisting in raising capital, underwriting of securities, arranging mergers/acquisition activities, as well as reorganizing and restructuring corporate entities. An investment banker may also engage in brokerage services through its brokerage arm and deal for its own account.
￼Investment Company or Fund
A financial institution or fund whose business is to pool monies basically from small investors for a fee. The monies are then invested in securities and/or other instruments in line with the investment policy and objectives of the company/fund. Two types of investment company/fund exist: the open-end and the closed-end.
￼Investment In Securities
The purchase of financial assets e.g. stocks and bonds with the objective of enhancing income through returns such as dividends, intere5t and capital gains or, in some cases, with the objective of gaining a seat on the board or diversifying risk. 170 Investment Income Income such as dividend, interest and capital gains earned from investment in securities and other assets.
The normal risk which is associated with investment in securities or any form of business venture. These include normal price fluctuations or busine5s vagaries.
A person (or institution) who buys and sells financial instruments with the aim of enhancing income and/or diversifying risk.
￼Fund An insurance fund established to compensate clients of stockbroking firms and other capital market institutions which have collapsed or defaulted on their obligations. There is often a limit placed on the amount of compensation receivable by a client.
Irredeemable Debenture Stock
Interest bearing securities issued by corporate entities which cannot be redeemed until the instruments mature.
Securities of a company or government sold by way of a public offering or private placement at a given point in time.
The portion of the authorized capital of a company which has actually been issued to subscribers (investors) which may or may not have been paid for. The issued capital may be equal to or less than the authorized capital but never greater than it. (see outstanding shares). 162 Issuer A company or government which makes an offering of securities to the public or a select group of investors.
A speculative, low-grade, high-risk, high-yield bond, issued by a company with short track record or poor credit rating.
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The financing of a corporate takeover largely through borrowed funds (loans), with the assets of the target company usually serving as the security for the loan.
The right which can be exercised by an unpaid creditor over the property of a debtor in his possession.
A directive (order) given to a stockbroker by his client to buy or sell a given quantity of a security at a specified price. The client may also state the period for which the order would be valid.
The ease at which a financial instrument can be converted into cash. An instrument which can be quickly converted is said to be liquid while one which cannot be easily converted is regarded as illiquid. A stock market is considered liquid when it can absorb large volumes of trading without significant change in prices and when securities can be easily converted into cash.
Options which are traded on an exchange.
￼Management Buy-In (MBI)
The purchase of a company from its owners by an outside management team.
Management Buyout (MBO)
The purchase of a company from its owners by the existing management team of the company. The managers in other words ‘buy out’ the owners.
A brokerage account that enables an investor purchase securities with loan from his stockbroker.
A credit facility which is extended by stockbrokers to their clients to purchase securities. Given the monetary policy implications of margin credits, such activities are usually regulated by central banks as well as securities market regulators.
￼Mark to Market
The daily settlement of obligations on a future position.
The market value of a company’s paid-up capital, determined by multiplying the current quoted price by the total number of shares outstanding. The market capitalization of a securities exchange is the aggregate market capitalization of all its quoted securities.
The percentage of the aggregate number of shares quoted on a stock exchange or the outstanding shares of a quoted company, which is traded freely on the stock exchange. Markets where the bulk of the outstanding shares is held by institutions and individuals who rarely trade their holdings, would exhibit low float while the reverse would be the case in markets where investors do not “buy and hold”.
The sale or purchase of a security with the intention of creating an artificial market in it, i.e by giving a semblance of a bull or bear market in the security.
An order given to a stockbroker by his client to buy or sell a given quantity of a security at the best price prevailing in the market. 193 Market Price The prevailing price of a security in the stock market
A dealer who stands ready to buy and sell securities for his own a count at his own risk. By so doing, a market-maker provides liquidity to and maintains stability in the market. (See dealer specialists).
￼The amount of stock or number of shares in which a jobber quoting a price would reasonably be expected to deal. As circumstances differ considerably between active and inactive securities, the amount varies.
The redemption or expiry date of a debt.
￼A firm licensed by a stock exchange to carry out brokerage services and deal for its own account.
The fusion of two or more companies usually on equal terms.
Money Market Mutual Fund
A mutual fund whose policy is to invest in short-term instruments such as ￼treasury bills/certificates, commercial papers, certificates of deposit, etc.
National Association of Securities Dealers (NASD)
A self-regulatory organization of broker/dealers operating in the NASDAQ market. The NASD owns and operates the NASDAQ. In Nigeria, the NASD would operate the over-the-counter market.
National Association of Securities Dealers Automated Quotation System (NASDAQ)
A securities market in the United States which does not have any physical trading floor but uses computers and telecommunications network to effect transactions. Owned by the National Association of Securities Dealers, NASDAQ is one of the largest securities markets in the world.
Negative Pledge Clause
A clause attached to a debenture stock barring the issuer from pledging the ￼assets of the company if doing so would jeopardize the ability of the company to meet its commitments to the bondholders under the particular indenture. (also called covenant of equal coverage).
Any figure from which some liability, such as tax, has been deducted. Thus, net dividend is one from which standard rate income tax has been deducted.
The total asset less total liabilities of a company. It is also referred to a net worth.
Net Asset Per Share
Net assets of a company divided by the number of its shares outstanding. (See net assets value).
￼Net Assets Value
The amount by which the assets of a company exceed its liabilities including loan and preference capital, divided by the number of equity shares in issue. For example, if the net asset is N30 million and there are 20 million, 50 kobo ordinary shares outstanding, the Net Asset Value per share is N1.50.
Net Capital Rule
A capital standard issued by securities commissions to operators, particularly broker/dealers, to maintain, at all times, a prescribed ratio of indebtedness to liquid assets. Under the rule, a firm is expected to always maintain a position where its liquid assets would at all times, surpass its indebtedness. This is aimed, essentially, at ensuring that intermediaries are in a state of readiness to meet their obligations.
Securities of a government or corporate entity newly created and offered for ￼subscription to the public, or to a select group of investors, in the case of private placement, or to a company’s existing shareholders as with rights issues. New issues are a means of raising funds for development financing, and do enlarge the paid-up capital of a company.
Securities which do not give the holder the right to convert his holdings into another class of securities of the issuer.
￼Non-Cumulative Preference Shares
Preference shares on which unpaid dividends do not accrue and cannot be claimed in arrears.
Securities which do not carry voting rights and thus preclude the holders from voting on corporate resolutions or elections. Preference shares are examples of non-voting securities.
See outstanding shares.
Par-Value (Par Price)
The nominal value or face value of a security. It is the value assigned to the security in the company’s memorandum. (See face value).
Participating Preference Shares
Preference shares which entitle the holders to partake in additional dividends of a company (i.e. apart from the stipulated dividend to preference shareholders) under stated conditions. This contrasts with non-participating preference shares which restricted to the stipulated dividend.
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￼A strategy sometimes employed by target companies in a take-over bid to reduce the attractiveness of their securities to the companies intending the take-over. This is often done by enlarging the outstanding shares of a target company through a new issue of shares to its shareholders at a discount to the market price, thus making the take-over quite expensive to the company intending the take-over.
The totality of the various types of securities and other financial instruments (stock, bonds, treasury bills, etc.) held by an investor. Although it mostly refers to financial instruments, real estate investments are often included.
A financial intermediary who uses his professional skills to manage for a fee, the portfolio of investments of his clients.
A class of shares whose holders have a prior claim over equity holders on the earnings of the issuer but do not have a priority claim over obligations to creditors of the company. Dividends paid to preference shareholders, unlike equity holders, are based on a pre-determined rate. There are variants of preference shares.
The difference between par value and market price and same time between transaction price and the previous m price when the difference is positive.
The ratio of price earnings per share i. e the value ordinary shares in relation to earnings a period. It is derived by dividing market price by the earnings per share a company. The P/E ratio is a measure the price being paid by investors for given earnings of a company and shows the time it would take an investor recoup his investment in a company profit and distributed income are held constant.
Information about a company which could influence the price of its securities on a stock exchange. Such information is required by law to be disclosed to the public immediately while insiders are prohibited from taking undue advantage of price-sensitive information to trade in the stock market.
The market for the sale and purchase of freshly issued (additional) securities of a corporate entity or government. (also called new issues market).
(i) The value of a debt security as issued by a company government. The principal of a debt instrument does not include interest and premium on the bond. It is the amount redeemed by the issuer on maturity.
￼(ii) Principal also refers to a dealer what acts for his own account in a stock market transaction.
(iii) Also refers to a stockbroker’s client for whom the stockbroker is an agent.
The sale of securities to a select group of investors as opposed to the general public. It usually by-passes the normal sales mechanism.
Automatic buying selling of shares on the instruction of computer, according to whether prices are rising or falling. En-masse program trading destabilises markets.
A document issued by a company giving detailed information about itself and ￼the securities being offered to the public. Such documents are usually required by law to be filed and vetted by securities commissions for completeness and subsequent registration before their release to the public. The prospectus is, in other words, a vending document, which enables investors evaluate the securities being offered and decide whether or not to participate.
(i) An authority given by a shareholder to someone else to act on his behalf at a meeting of shareholders. Usually, a proxy card would be completed ￼and sent to the company giving authority to the proxy to vote on his behalf. 228 Proxy
(ii) A document issued by a public company to its shareholders providing information on matters to which they would vote by proxy.
An invitation by a company or government to the general public to purchase its securities on offer. (see offer for subscription and offer for sale).
Current assets less inventories
A measure of short-term solvency of a company. It is derived by dividing quick asset (liquid assets) by the current liabilities.
The admission of a security for trading on a stock exchange. (see listed securities)
A company whose securities are traded on a stock exchange.
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The price at which a security listed on a stock exchange is traded at a given time.
A rapid increase in stock market prices or in the price of a particular security.
Random Walk Theory
￼A theory which states that past prices of a security cannot be a means of predicting future prices as stock prices are a reflection of the information coming into the market in a random fashion. In other words, daily changes in stock prices are at random and such changes have similar probability distribution.
The assessment of the investment quality of a bond by ascribing a grade such as AA, BB, CC to it. Ratings change with changes in the financial conditions of the issuer.
Institutions which, as a business, professionally evaluate the investment qualities of debt issues.
Securities of a Company or government for which a registration has been obtained from a securities commission and could thus be offered the public. It also refers to a security which has had its owner’s name register on the list of members maintained by the issuer or its agent.
A capital market operator appointed by a public company to maintain a comprehensive list of its bond/ shareholders; dispatches annual report, dividend warrants and return monies and other documents to shareholders. He ￼may also arrange annual general and extra-ordinary general meetings on behalf of the company and perform other related functions. Registrars’ activities are not restricted to public companies but extend to government issues
The formulation and application of rules and the introduction of ethical standards to guide business conduct, protect investors, maintain stability, and promote the efficiency of a capital market.
Stocks and bonds of companies which are not open to the public for subscription.
Undistributed profits of a company accumulated for reinvestment.
A new issue of securities of a company offered to its existing shareholders in proportion to their holdings. To enhance attractiveness, rights issues are usually offered at a discount to the market price of the security.
Trading on a stock exchange of rights in respect of a right issue by shareholders who do not wish to exercise all or a portion of the securities allotted to them. Such rights are only tradable during the offer period.
A standard trading unit in a stock exchange, e.g. 100 shares which indicate the minimum units of a particular security an investor could purchase or sell. (also called board lot).
The term often used to describe membership of some stock and commodity exchanges notably New York and Tokyo exchanges. Such exchanges have fixed number of seats (membership) which are bought and sold at prices determined by demand and supply. In other words, a prospective member can only be admitted when an existing member wishes to sell his seat.
Second-Tier Securities Market (SSM)
A second market established by The Stock Exchange in Lagos in 1985 to list the securities of smaller companies which are unable to meet the requirements for listing on the more stringent segment (main market) of the Exchange.
A securities market such as a stock exchange or an over-the-counter market where existing securities of corporate bodies and governments are bought and sold. Such securities has been previously issued and sold in the primary market ￼by the issuing entity. The secondary market allows holders of securities to sell, and those desirous of buying existing securities to do so whenever they wish to. Thus, unlike the primal market where proceeds of sale of securities go to the issuer, in the secondary market, proceeds go to the selling investor. The secondary market, therefore, provides liquidity to investors by ensuring easy convertibility of securities into cash.
Debt guaranteed by the pledge of some assets of the borrower.
Laws enacted to regulate activities in the securities industry. Such laws are usually administered by a government agency which may delegate some of its functions to Self-Regulatory Organizations (SROs). Most securities laws are primarily focused on investor protection.
Securities and Exchange Commission (SEC)
￼A government agency established by statute to administer securities laws. Such laws usually empower these agencies to regulate the capital market with the primary aim of protecting investors. In some countries, market development is added to their functions.
A market, physical or otherwise, where financial instruments are bought and sold.
Self-Regulatory Organizations (SROs)
These are membership organizations in the securities industry such as stock exchanges and National Association of Securities Dealers which set and enforce rules to direct the professional activities of their members and, in some cases, provide trading facilities for members to conduct business in securities.
The completion of a transaction in securities on a stock exchange or on an over- the-counter market by the payment after delivery of securities.
A certificate issued by a company to its shareholders evidencing ownership of a stated number of shares in the company.
Share Transfer Form
A form which has to be completed by investors to facilitate the transfer of shares from seller to buyer.
An individual or institution having ownership interest in a company and thus entitled to certain rights and privileges accruing to holders of equity shares.
Derived by subtracting a company’s liabilities from its assets. It indicates the ￼amount that would be left with shareholders should the assets of the company be sold and liabilities settled. It also gives an indication of the solvency or otherwise of a company. (also called net worth).
See equity and preference shares.
￼A system adopted by the US SEC which allows a company having certain features to file a master registration statement with it in respect of an issue which the company hopes to offer within the next two years. Following the master registration, the company may sell the security any time within the period, provided it files short statements. The features for qualification include:
(i) an investment grade rating;
(ii) no default on its debt in the past one year;
(iii) a given size of market capitalization; and
￼(iv) non-violation of the Securities Act within the past one year.
The sale of a security or futures contract which the seller does not possess. This is with the hope of buying back the security or contract at a later date when prices drop thus profiting from the sale. It is essentially a speculative practice.
A special fund created by an issuer of a debt security, into which regular payments are made, to meet certain obligations of the issuer such as retirement of the debt.
A member of a stock exchange who is assigned to a particular security or securities for which he has to maintain order and stability in their trading. He does this by standing ready to buy and sell the securities for his account when there is a temporary imbalance in demand and supply. The activities of the specialist prevent wide movements in prices which could destabilize a stock market. The specialist, unlike the floor broker, has no direct dealings with investors (the public), but in addition to buying for his own account, he assists floor brokers execute limit orders.
Market participant who engages in high-risk transactions in anticipation of quick profit arising from price increase. Unlike a risk-averse investor, the safety of principal is of secondary importance to the speculator.
The difference between the bid and ask prices of a security. The spread would narrow or widen depending on the supply and demand position.
The “advalorem” duty payable on the consideration money in the transfer of securities to a buyer.
An underwriting arrangement in which the underwriter only underwrites the unsubscribed portion of an issue. The funds in respect of the unsubscribed portion would normally be made available to the issuer at the close of the offer, when the subscription level has been established. The standby underwriter would subsequently hold the unsubscribed securities for eventual distribution.
An organization which provides facilities for trading in securities by its members and also sets rules for the admission and trading of existing securities as well as rules to guide the business conduct of members.
A measure of stock market trends and performance. It is often used as a barometer for monitoring upswings and downswings in the economy. (see ￼index)
Plan A corporate programme which enables employees to buy shares of the company. The plan usually takes various forms including compensation for executives, dividend reinvestment, and periodic deduction of a certain amount from the salaries of participating staff, for the purchase of the shares of the company.
The sub-dividing of the shares of a company in order to enlarge the number of shares of the company without a change in the shareholders’ equity, proportional holding, or an increase in the market value of the company at the time of the stock split. A company having outstanding shares of one million and which makes a split of 2 for 1 would have new outstanding shares of two million.
Securities held in the name of a broker rather than the client.
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The price at which a new issue of securities is offered to interested subscribers.
A company which has a large proportion of its equity shares in the hands of another. Such holding by the parent company has to be substantial enough to control the affairs of the subsidiary company – usually above 50%.
An agreement between two parties to exchange some financial instruments or commodities. Swap agreements are usually entered to hedge against adverse fluctuations in say, interest rates (i.e. Interest rate swap) or currency as in currency swap. Interest rate swap may, for instance, involve two parties ￼agreeing to exchange a fixed rate for a floating rate interest payment.
A loan packaged by a group of creditors agreeing to come together to provide credit facilities to a company, an individual or government. Syndicated loans are based on terms written out in an agreement which specifies the level of obligation of each participant.
￼Basically refers to the purchase of securities of a company from the stock market with the intention of acquiring sufficient holdings of its shares to control its activities.
The study of share behavior with the aim of anticipating future movements. Charts play a large part in this but other aspects of share activity also feature.
The physical trading area where financial instruments are bought and sold by brokers and dealers in a stock or futures exchange.
The division of a stock or bond issue into various portions for the purpose of sale to the public at different times. Each portion is called a tranche which sold at a separate time.
Trust Deed (See indenture for meaning).
￼￼Underwriting (Firm Commitment)
The process whereby a financial intermediary purchases all or a portion of a security issue from an issuer for eventual distribution to the public. The intermediary (underwriter) makes the total amount or the portion underwritten available to the issuer at the opening of the offer, thus bearing the risk of a possible poor investors’ response to the issue. Underwriting is thus a form of insurance which protects an issuer from adverse response to its security issue. (see also best effort underwriting and standby underwriting).
An investor in a unit trust scheme.
Unit Trust (Mutual Fund)
￼An open-end investment scheme which pools funds principally from small investors for subsequent investment in securities and other financial instruments. Investors are, in exchange for their funds, issued units which the unit trust manager stands ready to redeem whenever an investor wishes to dispose of his holdings. Similarly, new units are created on demand, hence they are referred to as open-end funds. (same as mutual funds).
Unit Trust Manager
￼An institution which manages a unit trust scheme for a fee.
Securities that are not listed/quoted on a stock exchange.
A placing of shares, by a stockbroker on behalf of persons who have acquired the shares (as consideration) for a business dealing with the company whose shares are being sold for cash. The shares are being sold as the persons may not wish to hold the shares of the company.
Monies which are invested in a commercial venture with highly uncertain chance of success; hence, such monies are called risk capital.
￼A person or institution which invests in venture capital companies.
The degree and frequency of fluctuation in the prices of securities or commodities.
A form of financial instrument issued as a “sweetener” by a company along with its bond or preference share offer, giving the warrant holder the right but not the obligation to purchase directly from the company a given quantity of its equities at a fixed price within a given period
A tax deducted at source from investment income such as dividend and rent.
The rate of return on an investment.
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￼Zero Coupon Bond
Bond which carries no coupon and thus pays no interest to the holder but is issued at a deep discount from its face value (i.e. the redemption price). To the issuer, the absence of interest payment is seen as an advantage while the investor usually benefits by way of capital appreciation.
Want to be like Warren Buffet, Michael Phelps? Here are their secrets
The distinctiveness among Buffet, Dangote, Ovia, Phelps, Bolt, Musk, is not what they do, but how they do it and how often they do it.
Michael Phelps won 22 Olympic medals (18 gold), how did he do it? Well, he trained and trained and trained, then he ate and ate and ate every day. He was also blessed with natural attributes i.e., he was tall.
So, wait, if I am tall and eat, and train, I can also win 18 gold medals? No! but stay with me.
Warren Buffet likes to invest. He reads research reports, likes numbers and is always looking a discount deal on great stocks. Ok. So, if I am good with numbers, research buy great stocks I will become as rich as Warren Buffet? Well, maybe not as rich but you will earn more from your investments. The distinctiveness among Phelps, Bolt, Buffet, Musk, Dangote, and Ovia, is not what they do, but how they do it and how often they do it.
Let’s look at an Olympic swimmer like Michael Phelps. When Michael was eight, he wrote out his goals; he wrote, “I would like to make the Olympics,” then listed his time goals for the various races i.e. breaststroke, freestyle etc. At the age of eight, this future Olympian had visualized his goals, written them down, and put a date for accomplishing them.
When seeking to create a financial plan, it is impossible to achieve success without visualizing out a goal on paper. Imagine creating an investment plan without any idea of a retirement date or income or rates of return. It’s impossible without a clear road map to determine how much to save and invest for five years. During his teenage years, he trained “every single day, 365 days a year, Sundays, Christmas and Thanksgiving days included… and twice on his birthdays,” says his coach, Bob Bowman.
If an investor saved N1.00 every day for 5 years at 0%, that saver would have N1,826.00 What if those savings increased to N5.00 and were invested at just 5% annually? Then the savings pot will become N10,373.04. Yes, inflation will erode the value after 5 years, but applying a 13% inflation rate, the saver still has a real saving of N5,170.14.
So, the second lesson we take from Olympic champions is to start early, save, and then invest constantly. Micheal Phelps is a swimmer, a sport for endurance and speed. What do endurance athletes like swimmers and marathon runners eat? Food rich in carbohydrates; they need the carbs to fuel the massive amount of energy they expend during their sports. Phelps, for instance, for breakfast eats as many as 12,000 calories prior to his races. His breakfast consists of “three fried-egg sandwiches, three chocolate chip pancakes, a five-egg omelette, three sugar-coated slices of French toast, and a bowl of grits.”
What does a sprinter like Bolt eat? Not calories but lean protein, eggs, meat, fish, dairy. Protein allows muscles to recover and develop after sprinting, which causes minute damages to muscle fibres that can be easily converted to energy. So, two different Olympic champions, each multiple gold medal winners, but because of their different sports, they eat very differently to achieve a different objective.
Similarly, in investing, each investor is different, bond investors have instruments that have 30-year durations as opposed to stock traders who may be looking to buy and flip a stock in hours. What is key is to invest according to a stated objective and risk profile.
Where the investor has a longer endurance factor to risk, meaning the investor can accommodate volatility in his earning, that investor will be comfortable investing on equities. Equities are higher-risk investments and can lose all invested capital but can also gain 100%.
However, where the investor has a lower risk endurance, then the investor will fill his plate with lean risk asset classes like sovereign bonds which offer lower volatility to stock and deliver a fixed return, but suffer if interest rates rise.
Thus, our third lesson from the Olympians, the food each investor eats, is a function of his individual sport. Where the investors have lower risk, his asset allocation diet is different. Each investor must tailor his asset allocation to his objectives and investment goals.
Proxy Voting: Making Your Voice Heard Inspite of COVID-19
Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf.
One of the privileges of owning shares in a company is the ability to attend the shareholders’ meetings and vote on important issues about the company. In most cases, such issues touch on dividend declaration, election and/or reelection of directors, authorization to fix independent auditors’ remunerations, and the election of members of the audit committee, among others.
It has been observed that shareholders love to attend such annual general meetings in person for the pride of place it provides, as well as the social status it bequeaths to the attendees in addition to the souvenirs they receive during such meetings.
Unfortunately, that era of a social event involving the physical gathering of shareholders seems to be going extinct, thanks to COVID-19. However, in spite of the devastating effects of COVID-19, and the changes it is bringing to our social life, shareholders can still make their voices heard during non-physical shareholders’ or annual general meetings. This they can do using proxy votes.
What is Proxy Voting: Proxy voting is a process where one person chooses another to represent him or her in casting a vote on his or her behalf. Proxy voting has not been more important than in the present COVID-19 times. In reaction to the pandemic, proxy voting is being used in areas outside corporate governance. For example, the US House of Representatives is pushing for proxy voting as a means of getting things done in the house. In a proposal released by the House Speaker, Nancy Pelosi, US lawmakers would be allowed to cast votes for their colleagues who are not in the Capitol in person. That underscores the advantage and the increasing importance of proxy voting.
Nigerian Companies and Proxy Votes: Proxy voting is not new in Nigeria, especially among Nigerian companies. Whether it has been effectively used or taken advantage of is another question. However, Nigeria’s Corporate Affairs Commission (CAC) has been proactive and forthright in its quest to ensure that companies in Nigeria and Nigerian shareholders alike, take advantage of the proxy voting process in keeping with the social distancing rules put in place by various governments to curb the menacing COVID-19. The CAC has therefore asked companies to take advantage of “S.230 CAMA on the use of proxies in holding their Annual General Meetings.”
In line with the availability of the proxy voting process as a way to give every shareholder a voice and the encouragement and enablement from the CAC, many companies in Nigeria are complying with the advice. A visit to the website of the Nigeria Stock Exchange indicates that all the 30 companies that notified the public about their annual general meetings via the Nigeria Stock Exchange, since April 1, 2020, included notices or indications of the need for proxy votes in such notifications. Many of them even included links to live-stream the events, for those who would like to participate online.
Brace for Change: There is no doubt that COVID-19 has changed and will continue to change the way certain things are done. From the look of things, proxy voting may become the new normal in corporate governance and conduct of shareholders Annual General Meetings.
Shareholders, big and small, should start getting used to voting by proxy, especially those who have not been doing so in the past. It is only by so doing that you will make your voice heard, in the affairs of the company in which you have worked so hard to invest in.
COVID-19 reveals that many Nigerians have no emergency savings
The playout of events following the lockdowns resulting from the ongoing COVID 19 pandemic shows that Nigerians do not have emergency savings
Though we are still grappling with the effects of COVID-19, it may not be too early to begin to take stock and find out what we did well during the pandemic and what we should have done better.
Almost everyone’s radar has been on the ill-preparedness or lack of appropriate response by the government, with little or no time for an inward look at ourselves.
The type of government we have in Nigeria should not have left anyone surprised at their response to the pandemic, especially when it came to the welfare of the populace. What do you expect from a government that is dysfunctional, at best?
With such government, it is time for Nigerians to begin to watch out for themselves and prepare for the unforeseen, like the times we are in currently. The playout of events following the lockdowns caused by the ongoing COVID-19 pandemic shows that Nigerians do not have emergency savings.
According to a recent publication from one of the national dailies, “Barely one month of a lockdown of Abuja, Lagos and Ogun state, millions of Nigerians had become stricken with hunger. Many could not bear an extension of the movement restrictions.” The ensuing protests were indicative of the fact that many Nigerians were living off their daily incomes with no savings to fall back on.
High Poverty Level
Many may have asked how they could save without having funds, to begin with. Agreed, the level of poverty is high in Nigeria; however, people should know that having savings is not a luxury, but a necessity. It does not have to be large, but putting aside something, no matter how small on a regular basis goes a long way in times of emergency.
I have seen images of Nigerians who surprised themselves and others with how much they saved over time in their piggy banks. There is no hard and fast rule of how much one should have in emergency funds, but there seems to be an agreement among financial analysts and planners that having the equivalent of 6 months’ expenses in your emergency savings account is the ideal.
The author of the book “Richest Man in Babylon” stated it clearly that if you do not save, it means that you have paid everyone else but yourself.
How to Start Saving
Pay yourself first: In line with the instructions in “The Richest Man in Babylon,” when you receive your monthly salary or collect that sales proceed from your business, “pay yourself first” by saving at least 10% of your collections or salary. For the salary earner, set up a direct deposit account where the money would be taken out of your pay directly into a bank savings account. By so doing, you are forced to save.
Cultivate the savings habit: Just as spontaneous buying is a habit, form the habit of saving. Do not see saving as putting aside the remnants (if any) after all your expenses. If that is your attitude to savings, then you fall into the group that pays everyone else but themselves.
One thing is certain; as long as you have the money, there will always be something that is going to demand that money from you.
Remind yourself to save: If you are a salary earner who does not want to set up a direct deposit from your paycheck or you are a businessman or woman of any means, you can set up a savings reminder around the time you receive your salary or around your peak business time.
One website that can help you with this is here. With this, you can send an email to yourself to be delivered around the time you expect to receive your pay or business income, reminding yourself to save. Just like you set an alarm on your mobile phone, you can do so with a reminder to save.
Start Small ASAP: The Bible says that if you are not faithful with small things, how can you be faithful with larger things. You do not need millions to start saving, all you need is the will, the determination, and consistency. So, start small and start now, but be consistent.
Reduce your Expenses: As already noted, one of the reasons that people do not save is because their expenses keep increasing, even when income sources are shrinking. If you find yourself in that situation (and you surely will, at one point or the other), cut down on your expenses and make them fall in line with trends in your income. Avoid spontaneous, emotional and flamboyant buying. Buy out of need, not out of want.
Why It Seems Difficult to Save: To a whole lot of people, it is difficult to save because they live in the now. This is what financial psychologists call scarcity of attention. This scarcity of attention stops people from seeing what is really important and makes them see the urgent current expenses they need to cover.
One reason why it is difficult to save is that while the expenses keep rising (out of increased need and inflation), sources of income keep shrinking or stagnating. The good thing however, is that we have the option to shrink our expenses in line with shrinkages in our income, but often times, we do not choose to do that. That is where the inability to save starts from.
Conclusion: If there is any lesson, we learned from the sudden outbreak of COVID-19, it is and should be that emergencies happen, and efforts should be made to cushion the financial impact of such emergencies by preparing for them in advance through emergency savings.
Written by Uchenna Ndimele email@example.com