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Emergency Fund: Can you raise N50,000 cash tomorrow?

Focus on building up your emergency funds before building a portfolio of assets.

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Emergency Fund

Can you raise N50,000 cash tomorrow? Yes cash, without selling any asset of yours; Can you? This is a very important question you need to ask yourself. One generally accepted lesson from the 2020 economic downturn for both corporations and individuals is to always have an emergency fund (EF). So, what is an Emergency Fund? How is it set up? How is it used? Let us explore.

What is Emergency Fund

An EF is a savings account set up to pool and hold a minimum of three months of calculated Non-Discretionary Income (NDI). The EF is advised as the first activity any investors should undertake. Specifically, before even investing a cent, set up and maintain an EF because this fund acts as an “insurance” or stop-gap for your income or investment portfolio.

How is an Emergency Fund set up?

An EF captures a minimum of three months of Non-Discretionary Income (NDI). What is NDI? These are expenses incurred that must be settled irrespective of income. For instance, rent must be paid, groceries must be paid, we cannot simply stop paying utility bills because we lost our job and thus income.

Once we decide on an investment plan, the first thing to do is to list out all expenses we will incur and attach a cost to them per month or annual basis but corresponding to the period of payment. We do this to identify the necessary expenses which we refer to as the NDE.

List of expenses

  • Rent N1,500
  • School fees N500
  • Camping/Holiday N300
  • Go to Movies N100
  • Groceries N400
  • Cable TV N200
  • Gas for cars N200
  • Phone Bill N300
  • Eating out Dinner N200

Total expenses for the month are 3,500

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Next, decide which of the expenses listed above are Non-Discretionary. In other words, which of these expenses must be settled irrespective of income? Let us assume our client chooses the following as NDE:

  • Rent N1,500
  • School fees N500
  • Groceries N400
  • Gas for car N200
  • Phone bills N300

These expenses above come to a monthly NDE of 2,900, with a three months minimum of 8,700. This minimum sum means that should the client lose his job or suffer any other income interruption, these necessary expenses will be paid from the emergency fund, without the need to sell down investment assets at fire-sale prices just to raise income.

How is it used?

The Emergency Fund is simply a piggy bank. Once it is set up, you can increase the minimum saving from 3 to 4 and as high as you want to go. What is does is insulate your investment portfolio from losing any compounding or dissipation in principal because you must sell.  So, if there is income interruption due to job loss or you simply want to take a long holiday and write a book, you can do so and still meet your expenses from these savings.

An EF is not only for downturns, as it is also good for opportunities. A friend of mine bought an almost brand new car from a work colleague that was emigrating abroad because he could pay cash immediately in short notice. Cash is always king when you are in a tight negotiation with a seller.

Your Emergency Fund should be kept in cash or near cash investments. Return on investment for the EF is secondary to access to those savings. Also, you want your EF in an investment class with fixed income with no variation in returns. this means in practical terms do not invest your EF portfolio in equities that pay a variable return or even any asset which may need documentation and visits before you can access your funds. I am also wary of a commodity like gold, which does hold value, but cannot easily be converted to cash. The recommended asset classes to invest your EF are:

  1. Call or Fixed Deposit in Banks
  2. Sovereign Treasury bills, they are easily discounted and converted to cash
  3. Certificates of Deposit with bank

If the asset call cannot be converted to cash in one activity should be avoided. Also, ask the institution if they charge fees for early withdrawal and what those fees are.

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What can I do tomorrow?

  1. Start an emergency fund immediately. Do the expense exercise, determine your Non-Distortionary Expenses, start to build up a savings pot.
  2. Focus on building up your emergency funds before building a portfolio of assets.

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Personal Finance

10 Business mistakes to avoid post-COVID-19

With the emergence of lockdown and social distancing, businesses are now incorporating innovative working arrangements.

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The "new normal" in business and economy

Not only did COVID-19 spread globally, it also stopped all activities in almost every sphere of human endeavour.

Apart from the fact that the pandemic affected many lives, it also brought about a great disruption in the business sector.

SMEs and large enterprises have experienced various forms of contractions, and this has led to business closure for some. Many companies thrived on an existing modus operandi and were not prepared for the impacts of the pandemic. However, with the emergence of lockdown and social distancing, businesses are now incorporating innovative working arrangements like remote working, online services as well as regular variation in shifts.

READ MORE: 3 major ways COVID-19 will affect Banks’ 2020 profits

While the pandemic is still being brought under control, a new order of business operations has been established and going forward, businesses must carefully plan and think out ways to thrive.

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While planning on how to navigate the whole situation carefully, it is advisable to take note of certain mistakes that could hinder their progress.

This article provides for you ten (10) mistakes you should avoid making in your business post-COVID-19.

READ ALSO: Rewane outlines sectors to drive economy in 2020 

1. Not having an online presence

The pandemic brought a halt to movement and large gatherings, and this stopped many businesses that existed mainly on physical interactions to stop and pack up. Business owners must learn that it is a huge travesty to plan their strategy without having an online presence; in fact, they would be missing a lot. They must strategically think of going digital and maximize the opportunities that come from interacting with over 4.5 billion people.

2. Limiting the business vision

The pandemic has pushed heads of enterprises to a position of mere survival. Plans and decisions are being made just for the moment without considering the long term existence of the business. Every business started off with a mission, a set of objectives to achieve and needs to meet. Regardless of the economic transition, it is important to hold those goals in mind while constantly seeking ways to attain them.

3. Poor marketing strategy

With the emphasis placed on marketing, especially on digital marketing lately, and the importance it holds for any business, it is not only a mistake for an establishment to limit its marketing strategies but a business taboo as well. Many products and services have emerged during the pandemic which poses competition to already existing providers. It is a necessity to brush up the marketing game in order to gain relevance in the business sector and source for more leads as well.

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4. Building on hope

Optimism is good, but planning is better. We are moving into an era of intense technological integration which has influenced various business operations. E-commerce, as well as remote working, has become a norm and businesses will have to move with the flow. There are quite a number of entrepreneurs who are waiting for the tides to calm so they can paddle their boats. The trick is in planning while waiting. It is okay to place one’s bet on hope but mapping out plans for sustenance is more advantageous.

5. Unplanned redundancy

It will seem like the way out for most enterprises to lay off some of their workers in order to survive the disastrous financial situation they may experience. However, one key factor in adopting this strategy is to carefully examine the effect it might have on the growth of the business. Over time, there might be a need to hire new workers which will incur a cost in recruiting and training new employees. Low man-power influences productivity. As such, measures must be put in place to make up for the labour pool that will be cut off.

6. Pouring new wine in old wineskins

Innovation has been on the rise on account of the pandemic. New commercial and industrial techniques are sprouting paving the way for longevity. Holding onto old and familiar methods that are no longer effective could constitute a big mistake for any business. Entrepreneurs and managers have to embrace the reality that comes with post-COVID-19 with a sense of focus.

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7. Ill-suited rigidity

Flexibility is one of the keys to thriving after the transition. Understand that the pandemic has affected the world economically and otherwise. Hence, it is crucial to adapt to the changes by inculcating new plans, being versatile and multifaceted rather than being inappropriately unbending.

8. Neglecting creativity

Neglecting the power of creativity is a costly mistake every business should avoid making. The post-COVID-19 period will be a salient time to be creative and innovative. Establishments should be on the lookout for how to meet the needs of consumers, ways to improve their services in order to stay in vogue. Teachers are resorting to virtual classrooms; traders are integrating e-commerce; companies are investing in work-from-home technology. It is all about creativity.

READ ALSO: The “new normal” in business and economy

9. Ineffective communication

With much regards given to remote work and other emerging working arrangements, it is important to devise means to ensure effective discharge of duties by members of any business. The ineffective flow of communication can retard the growth of businesses which is one of the mistakes to avert. When workers understand that it takes collective effort to ensure the continuity of the business, it becomes easy for them to efficiently invest their energy.

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10. Poor assessment

Disregarding the place of systematic evaluation of the performance of any enterprise is one of the business mistakes to avoid post-COVID-19. There should be a feasible assessment carried out to ascertain where the business stands in terms of labour force, expenditures, cash flow and returns on investment.

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Conclusively, there is no green light as to whether a post-COVID-19 will exist or not. However, as the virus lingers, each business owner must adjust to make sure they do not make the above-mentioned mistakes or other possible business mistakes that may not have been mentioned in this article.

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Personal Finance

10 things to adopt in your business to adjust to the new normal

As scary as the thought might be, the new normal might last for a very long time.

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Nairametrics Financial literacy, invest intelligently, portfolio diversification, treasury bills, Your next of kin, or not?, Investing in uncertain times, Things to accomplish during COVID-19 lockdown

Towards the end of 2019, many businesses wrote their plans, strategies and goals for 2020 and were ready to dominate the market. However, the year did not start as many thought it would. The COVID-19 pandemic brought about new ways of doing things, which is now known as the ‘new normal’.

As scary as the thought might be, the new normal might last for a very long time. Therefore, businesses need to find a balance between what worked in the past and what needs to be done to adjust to the new normal. While some businesses were forced to shut down, many businesses had to change their strategy in order to adjust to the new normal.

Any business can survive the pandemic and adjust to the new normal just by pivoting to a new business strategy. As a business owner, you have to think about growth and look for methods you can adopt in your business to adjust to the new normal and remain relevant. Keep reading to discover ten (10) things you can adopt in your business to adjust to the new normal.

1. Accept the changes 

The first and most important thing to do for your business to adjust to the new normal is to accept the changes and embrace the new normal. Waiting for things to go back to normal before you continue your business is the wrong move because things might never go back to the way they were.

2. Think Technology 

Innovation and the use of technology in businesses have been on the rise, before the pandemic. Technology is the future of the business world. The latest trend since the pandemic started is to replace manpower with technology. With this, the business continues without endangering the lives of the employees.

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3. Change your business model

Reinvent your business, align your business strategies with society’s changing needs and develop a low-cost business model that would help you to stay in business while delivering your best.

4. Involve your employees

The business world has reached a level where you have to involve your employees in the decision-making process. This gives them a sense of responsibility and makes them more involved in the growth of the organisation. Involving your employees will help the business to adjust well and experience growth.

5. Focus on your customers 

Listen to your customers. Make an effort to meet their increasing demand and take advantage of their changing attitudes and behaviour. You can do this by conducting a survey and requesting feedback. This is the best time to conduct market research and get all the information you need. This way, you would know if you are on the right track.

6. Stay connected

Transitioning from the current state (Covid-19) to recovery state (Post Covid-19) requires staying connected to the outside world. The question; ‘what is working or not working for other businesses?’ should be asked as often as possible.

7. Adopt a mobile strategy

Since the beginning of the pandemic, the majority switched to remote working, which might have brought about a reduction or lack of communication for some businesses. Business owners should work on their communication system during this period by employing a mobile strategy to get employees up and running.

8. Focus on advertisement and marketing

To cut costs, many businesses are cutting their advertising and marketing budgets, so any business that focuses on advertising and marketing will get all the attention it needs now.

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9. Collaboration, flexibility and accountability

The best time for flexibility, collaboration and accountability in business is now. Adopting systems such as informal interactions and remote work would help build a flexible, accountable and better workforce. Not only will this make your employees happy, but it will also give your business the exposure it needs.

10. Risk management systems

Businesses should take advantage of this opportunity to set up a risk management system. The pandemic is enough enlightenment for businesses to know that they should put measures in place to identify, assess, monitor and mitigate the impact of risk on their business in future.

If your business has been affected by the pandemic, you can get back on your feet and begin to break new grounds. All you have to do is adjust your business to the new normal by thinking differently and being strategic in all dealings.

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5 ways to raise funding for your business

Here are a number of ways to raise funds for your business.

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5 things you can do to attract equity funding for your business

One of the biggest challenges that entrepreneurs face is finding the necessary funds to grow their businesses. Startups have to deal with various costs, while ongoing businesses have to finance growth and working capital. As money does not grow on trees, there are a number of ways to fund your business.

We will love to see your business grow and make huge impacts, which is why we have compiled in this article five concrete ways to raise the money you need for your business.

Bootstrapping

This means financing your company by scraping together any personal funds you can find.

In many cases, using the money you have instead of borrowing or raising is a great approach. In fact, some entrepreneurs continue to bootstrap until their business is profitable. This can be beneficial because it means you won’t have extensive loans and monthly payments that can weigh you down, and investing some of your own money will usually make investors and lenders more willing to partner with you down the line.

Friends and Family

If your funds are not enough, you can turn to the people closest to you. This is often a good first step before considering external funding. Family members and friends can be easier to persuade than anonymous lenders because they are less likely to demand stringent repayment terms or high-interest rates.

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Borrowing from friends and family comes with its own set of risks. If the venture fails, or if it takes much longer than anticipated to repay the loan, your relationships can suffer.

Before you ask your friends and family for money, you should have a business plan ready. This way, you can explain to them exactly what you are doing and how you will make money. Also, ensure that you have all terms of the loan written out. That includes how much you are getting, the amount of interest charged, and the terms and deadline of repayment.

Angel Investors

Angel investors are groups or individuals who invest their own money into other people’s businesses. They stand out because they tend to invest in companies at earlier stages of growth and are always on the lookout for the next business to invest in. Many of the biggest tech companies today, including Google and Yahoo, were funded by angel investors. Typically, an angel investor is one who is successful in a particular industry and is looking for new opportunities within that same industry, or other industries. Not only can angel investors offer financing to get your business off the ground, but some may also choose to guide you. They may also leverage their existing contacts within an industry to open doors for your business.

Crowdfunding

Businesses have been using the internet to market and sell things since the 1990s. However, over the last decade, the web has become a new source of financing as well. With this, you can get funding from websites where investors can support your business no matter where they are in the world.

You will be required to set up a campaign and name a target amount of money you want to raise, as well as create perks for donors who pledge a certain amount of money, such as early access to products, discounts, and so on. You then raise money for the campaign over a specified time. Some websites you would use for this financing method are Kickstarter, GoFundMe, Indiegogo, Crowdrise, and many others.

Loans

Loans can be gotten from banks or other financial institutions. This method is one of the oldest, although many do not prefer it.

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To get loans, you might be required to show that you’ve started gaining traction and making money (and that a loan would help you earn even more). You may also need to present a well-detailed business plan. Your business’ financial projections give lenders the details needed to be sure of the income you would have to repay loans, including interests. Usually, bank loans do have legal regulations, which will have to be followed accordingly.

In conclusion, entrepreneurs must weigh the benefits and downsides of available funding options and determine which one provides the greatest flexibility at the least cost. There are many options for financing your business, so do not get discouraged if one does not work out. By demonstrating due diligence and resourcefulness, you can easily raise the capital you need to move your business to the next level.

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