Irrespective of where we are in life, we should always equip ourselves with tools and the knowledge we need to confidently manage our finances. Every woman needs to at least know the basics of personal finance to avoid potential costly consequences especially in this period of global unrest.
Financial literacy has an impact on wealth accumulation, retirement planning and stock market investment. In financial literacy matters, women tend to score lower than men consistently, but with the aid of personal finance experts & associations like Nimi Akinkugbe, Arese Ugwu, Tosin Olaseinde, WIMBIZ and Women in Finance Nigeria that help in mentoring, encouraging, supporting and guiding women on how to gain financial literacy, this fact is gradually being eliminated and a lot of women are now making waves when it comes to managing their finances.
These associations and professionals encourage women to save, spend less and invest more, thereby enabling women gain financial freedom and create wealth.
Here are some financial tips for women during this global unrest
The following are few key guidelines that every woman should keep in mind in order to manage their finances well.
1. Cut down on Expenses
Money Management has been a major challenge for some women, combined with the society we live in, where most women want to stay relevant by acquiring expensive wears and accessories that most of the time becomes a liability. In as much as looking good and taking care of oneself is very important, it should however, be done wisely.
Studies show that women with high financial literacy and money management skills are less likely to engage in irrelevant spending/impulse buying and increases spending behaviour by 8%. While, 60% of a woman’s dream in a corporate organisation is to work hard, get promoted, earn more money, and leave the rest to work itself out.
The real issue with most women is that they have not articulated what they want the money they earn to do for them; hence, they end up letting their resources drag them into several directions that are not necessarily theirs.
The truth is, if you as a woman have a specific goal and a financial plan, you would avert going into debt and spending more than your budget. One needs to cut down on expenses especially as the global economy continues to be crippled by the coronavirus pandemic.
2. Have a monthly budget plan
This period of global unrest is not the period to spend unwisely. You need to set up a monthly budget plan that will aid your spending especially during this period. Reason being that no one knows when the world would fully recover from the pandemic.
During this time, identify and set a budget that goes a long way in accumulating money required for your various essential milestones and activities in a month. Set your monthly budget on rent, savings, utilities, groceries and miscellaneous, as it brings a lot of clarity.
More importantly, you also need to have a financial plan for the rest of the year and strictly abide by it, so as to reach your financial goal(s) for the year and beyond.
Point to note: This is not the period to over shoot budgets. When setting your budget, make sure it is well defined and prioritized accordingly. It is great to have a big, lofty budget, but be sure to break it down into smaller bits. That way, you are not overwhelmed trying to accomplish them and you can easily measure your progress.
3. Save! Save! and Save!
Saving is setting aside a sum of money from your income, for future use, mostly for unforeseen emergencies. While growing up, the Piggy/Kolo box was an important financial lesson of life for me – a habit of saving my mother taught me. Not only did she teach me this, she also led by example. An example that should passed on to generations.
If you are scared of visiting the banking hall during this pandemic, this is the period to get a Piggy/Kolo box (you can get one from mykolo.ng), or engage in some online saving platforms (such as PiggyVest, ALAT and Cowrywise) that enable one to save. These platforms are currently encouraging a strong saving culture in Nigeria with good interest rates.
This period has taught us a big lesson, as the global pandemic was unprecedented. If you have not started saving already, make this half quarter of the year reckoning. Let’s resolve to develop the habit of saving regularly, by removing 20-40% (or even more) out of your income towards building a financial future.
4. Plan and Invest wisely
Some women tend to shy away when investing is mentioned. Engaging in investments is extremely important but should be done wisely, especially during this time. Planned and regular investments can create the difference between you fulfilling your goals and you earning returns.
Planned investments entail estimating what the objective of the investment is, the sum of money required for the objective, the investment type that can be made and the time horizon for the investment.
It is very critical to choose the correct investment tool. In this period of global pandemic, it is advisable not to go into investments like the stock market as stocks are volatile in nature. Real Estate investing (distress sales), is a good option.
Investing in the stock market is a step with serious economic implications as markets are panicking and this global pandemic is unprecedented. Unless you run a business, it is advisable not to make any economic decisions at this time. It is also imperative not to buy, sell assets or modify your investments. One needs to stay put and see how things turn out.
Reading and watching stock & analyst updates via television, radio and newspaper will give you insights on when to invest. Do set some cash aside to invest in the coming months. If stock prices take a dive, one may have a prime opportunity.
5. Having multiple streams of income
The key advantage of having multiple streams of income is that you have a diversified revenue source. And therefore, the collapse of one sector will not result in a complete loss of revenue for you.
Adopting the multiple streams of income philosophy is, more or less, like deciding that you will not put all your eggs in one basket. In practice, adopting the multiple income streams way of life means that you will not get stuck on your day job so much so that you don’t give attention to anything else.
What happens if you lose your day job like thousands of employees did during the economic meltdown? If all you have is your day job, then losing it will be disastrous. However, if you are investing in multiple streams of income while doing your day job is, losing it will not kill you.
Other benefits of having multiple income streams include: Peace of mind because you know there will always be money to spend and you will earn much more than you currently earn, enabling you to live better.
6. Get Insured
After working so hard to earn your money, the last thing you want is an unplanned occurrence to wipe you out. Insurance is essentially your back-up plan that will protect your assets in the event a life circumstance happens that requires a large amount of money to resolve.
Your insurance coverage should include health, auto, life, home, and business. Basically, you want to protect anything of major importance that has a high value to ensure that you (and your loved ones) are protected financially. Having the right insurance can turn what could otherwise be a major disaster into a mere inconvenience.
5 indispensable money advice for the 21st century working adult
Some excellent finance tips for the 21st-century adult to keep in mind.
A lot of people argue that the digital century has made it much easier to make money. With a simple tap on your phone screen, you could invest in global stocks and resell at a high price within a short period.
Some others are making money by simply entertaining the world on their YouTube channel, and some others have built a loyal community of followers on social media platforms like Twitter and Instagram, turned into ‘mini celebrities’ and brand influencers who now make serious money by helping to bring merchant’s products into the consciousness of their followers.
Now, whereas the ability to make money has become easier, managing one’s finances is, however, a different ballgame. As a matter of fact, it is guided by completely different laws from those of making money. We hereby bring you some important tips on how to manage your money.
Below are some excellent finance tips for the 21st-century adult to keep in mind. Why the 21st century? Well, this age has completely different trends and a whole different kind of financial challenge.
Never regard gambling or money doubling ventures as investments
Such ventures are ‘for-profit’, meaning that they are out to make more money than they payout. So what are the odds that you, out of the millions who play the game, will end up as winners? Probably less than 0.000001. That said, you are more likely to lose your money than win more.
Playing or not playing such games may completely be a thing of moral disposition. However, if you want to play the game, consider the money as one that many never come back, instead of as one that is expected to come back in multiples as return on investment.
Better still, find other pastimes or distractions if you enjoy playing games. Once again, these are not ‘investments’. It is gambling.
Understand what promotions and discounts really mean
Discounts and promotions often come across as saving some money. But of a truth, you are not saving, you are spending – maybe less, but you are still spending nonetheless.
It is not an unwise decision to take advantage of discounts and promotions, but if you do not already have the item listed in your budget, it is better to disregard it.
Unfortunately, this is not often the case as young adults continue to be overwhelmed by the sense of urgency when a merchant declares a 30% discount of sales of his products for a limited period.
The emotional pull is to cash in on this promo while it last, especially since the message says you can save a certain amount of money by buying it. However, the practical reality before you is that you are spending and not saving at the moment you make the purchase.
You are only actually saving some money when you already have the item in your list of expenses and end up spending a lesser amount to purchase the same item.
However, if a discount is being offered on a product you absolutely need, you can go ahead to make the purchase even if you have not planned for it, so long as you understand the difference between needs and luxuries.
This should not be a habit because it makes a mess of the financial discipline you have been trying to build on so, it’s something you should be mindful of.
Whenever you go shopping, go with a list and stick to it
Never go shopping without a market list. It probably seems like a weird thing to do but having a market list can and should prevent you from impulsive buying, where you buy items you do not need and forget the things you need.
Every Merchant is out to make sales and the result of this is that they try to make their products as appealing and captivating as possible.
No matter how few items you want to buy make a list and stick to it. You have no idea how much heartache it can save you.
Place a cap/limit on your weekly spending
Nothing truncates your financial goals like unplanned spending. Having understood what makes up your weekly budget, make some allowance for emergencies and place a weekly limit.
The attitude of ‘lets-see’how-it-goes’ is not the best for managing your finances. The choice to place a weekly limit is akin to checking your expenses, especially since you know that spending on unnecessary items could result in you sacrificing some of your actual needs till the next week.
Banks and financial institutions can help you activate this feature, thus preventing you from making any debit transaction on your card once you have reached your limit.
With this, you are compelled to postpone other expenses until the start of a new week.
Make buying decisions based on value and not cost
For the purpose of clarity, cost is what you pay for the product and value is what you get. The summary of this point is that you should know when an item actually costs more than it is sold, and make your buying decisions based on this knowledge.
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John and Francis both decide to get a car, but while John decides to buy a brand new car, Francis opts for a fairly used car at less than half the price.
Three months later, Francis’ car has spent more nights at the mechanic shop than in his garage, while John has only now remembered to take his car for the regular maintenance and check.
On the surface, John might have paid more but he got his money’s value, while Francis has come to discover that he paid more (cost) for less (value). For all the troubles it has given to him, he would probably have been better off going for the newer car or staying without a car at all.
When you want to make a buy, decipher the cost and the value and let this be your guide. You might spend much, but make sure it is right for the value you are getting.
5 tips to ensure that you save more even when you spend more
These are ways to ensure that you save more even as you earn and spend more.
Have you ever had an increase in income, with high hopes of achieving lofty targets, only to find that your expenses still gulped the entire sum?
That is the summary of what lifestyle inflation means – expenses increasing to match up with your income. And it never goes the other way. Yes, your income does not rise to meet your expenses. It is always your expenses rushing up to meet income.
Most people will spend more if they earned more, but not necessarily save more or invest more. This is not the best of financial habits.
We will be looking at five things you can do to prevent lifestyle inflation, and improve your money habits. These are ways to ensure that you save more even as you spend more and earn more.
Have a budget
Ridiculous as it sounds, some persons do not keep records of monthly expenses, and they have absolutely no idea what they spend their money on. You cannot go month to month, spending on every and anything which comes up without having a clear idea of what you spend on. Your budget should capture everything your money goes to, including monies you give out to family or friends, provided it is done regularly.
The first thing your budget does for you is it tells you what direction your money goes. Some people spend ridiculous amounts on regular costs like data, but still complain at the end of the month that they do not know where all their money went to.
The next thing a budget achieves for you is prioritisation. When you have a clear idea of what you spend every month, you can easily stream down and decide what expenses to reduce when you have less purchasing power. It would also help keep your expenses in check, ensuring that they do not suddenly double because your earnings increased.
Make your financial plans in percentages not figures
Ensure to make your financial plan in percentage, not figures. E.g., instead of saying you will save N10,000 every month, decide to save 15% or 30% or 40% depending on the size of your income. Now, what this means is that when your income increases, your spending may increase but your savings would increase also. There could also be room to review your percentages; if you start earning more, you could decide to increase the percentage you save or invest monthly.
Structure your financial plans in percentage and stick to it, because it pays in the long run. Even your savings could be further structured, so that you have a certain percentage in liquid assets, or have some in high-risk assets, and others in low-risk assets.
The percentage plan always works, particularly if you are not very disciplined with finances.
Learn to differentiate assets, liabilities, necessity and luxury
Unless you have an unlimited amount of money at your disposal, it is very important to differentiate between assets, liabilities, necessities and luxuries.
This has nothing to do with the item itself, but everything to do with you and what purpose it will serve you. So, while getting a new laptop may be a necessity for a data analyst who needs a gadget with a higher capacity to serve his work needs, it may simply be termed luxury for the factory worker who just wants something to keep him busy when there is power outage.
Now all four categories deserve to be captured in your budget, but differentiating one from the other will help you better prioritise and know what you really don’t need to spend on.
If an item is not going to directly affect your earning capability or increase your income, then it is not an asset. It could still be a necessity though, even if it is a liability. It can be a bit challenging to accurately label your expenses, but it is something you need to consider so that you do not end up rationalising every luxury item on your list.
Necessities should always get priority in your budget.
Build and maintain an emergency fund
Simply put, emergency funds are funds set aside for emergencies. if you decide to invest such funds, they have to be invested in liquid assets which you can easily convert to cash when the need arises.
Some people refer to emergency fund as miscellaneous, and end up spending it on other expenses. You cannot spend emergency funds on electricity bills or any other utilities. Expenses which occur regularly must be provided for, so you do not end up spending your emergency funds on routine expenses.
Emergency funds must be kept aside for emergencies only. Of course, your insurance plan will come in handy if emergencies occur, but getting a comprehensive plan may not be too affordable for you, depending on your income. Your emergency fund should be your first point of call then.
Have a regular budget for treats
On a final note, have a budget for treats. It is quite easy to make a monthly budget and capture utility bills, data, food, and transportation, without making any provision for treats. But what happens when you have that occasional craving for pizza and ice cream, or you feel like going to get a massage at the beauty parlour, or you want to get a gift for a friend? Failing to make provisions for the occasional treats could mean that you end up dipping into your savings or funds meant for other things when these cravings come, or you need to buy yourself a gift after working really hard and achieving your goals.
Life is not meant to be tight, and you cannot be so stringent with spending on yourself. Some people will make a budget for every bill in the month without setting aside something to occasionally spoil themselves. This may be good on your finances, but not so good for you.
Even though you want to save and invest towards your retirement, you also need to occasionally treat yourself to something good, or reward yourself for working so hard and achieving your goals. Life is not all about nails and hammers, after all.
These cravings for luxury are bound to come, and since you are not going to go begging to get it, it is better to have a monthly provision for treats. It could range anywhere from 2% to 10% of your earnings, depending on you. If played well, it could become a good source of motivation to you, knowing that there is a reward for working hard. Also, the quality of your life naturally improves (with more money for treats) as you earn more.
Emergency Fund: Can you raise N50,000 cash tomorrow?
Focus on building up your emergency funds before building a portfolio of assets.
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
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:
- Call or Fixed Deposit in Banks
- Sovereign Treasury bills, they are easily discounted and converted to cash
- 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.
What can I do tomorrow?
- Start an emergency fund immediately. Do the expense exercise, determine your Non-Distortionary Expenses, start to build up a savings pot.
- Focus on building up your emergency funds before building a portfolio of assets.