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September.16.15Retirement Planning
Blue And Pink Piggy Banks,
Money Matters with Nimi
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A recent survey of how the average Nigerian is feeling about their personal finances attracted the following responses;

  • I am five years to retirement and afraid I might just not have enough. I am scared that my standard of living will fall.
  • I have two children studying abroad and with the devaluation of the naira, my plans have completely fallen apart. I will have to bring them home if things don’t improve.
  • 1,000 staff have been laid off at my work place and I am so scared that I will be next.
  • My father had a stroke and is living with us; he doesn’t have any medical insurance and his drugs have become very expensive. We are really struggling to give him the care he needs.
  • My daughter graduated 18 months ago and has been interviewing ever since with no prospect of any job in sight.

For those that crave a level of certainty and predictability, these clearly are uncertain times. With a high level of unemployment, devaluation, an air of insecurity, and political uncertainty, it is easy to become discouraged and anxious. The need for having a sound financial plan in place becomes more glaring in times of economic and political uncertainty and is key to financial security. We cannot be in control of everything that happens to us; we should thus be proactive about taking charge of our financial lives. Here are a few tips to consider.

 

BudgetingCutting back on your spending is a must during periods of uncertainty. Develop a strict spending plan or budget and be accountable for all your spending.  Track your expenses for a period and identify ways to save. Having some rainy day savings in the bank helps to give some comfort and peace of mind.

Financial experts recommend having a financial safety net of six to twelve months worth of basic living expenses. For many people this will sound impossible but just start by saving enough to cover one month’s living expenses and then build up from there. Having some funds to fall back on gives a sense of security.

It is very tempting to want to borrow to get through difficult periods but this will only make your situation worse as interest expenses increase and put you into further debt. Even if you feel you can pay off the debt, circumstances change and you will be under even more pressure.

This is the time to do everything you can to retain your present employment or increase your prospects with potential employers by learning new skills and expanding your network In addition to keeping abreast of new developments in your profession, spend some time improving your technological skills. Particularly if you are concerned about being laid off, it is useful to develop alternate sources of income using your skills and talents.

In uncertain times, the natural tendency is to sit on the sidelines and stay out of the markets. Yet, uncertain times and volatile markets present opportunities.

investment

Investment

Limit your exposure to single country risk by having a mix of domestic and international investments. Diversification is one of the best ways to manage risk by spreading it out among multiple investments. When your money is invested in a variety of asset classes including stocks, bonds, cash, real estate, they tend to respond to market vagaries and financial conditions differently. Mutual funds offer easy access to the stock market as well as a variety of funds to choose from, professional management, and a diversified portfolio.

Seek professional advice. Professionals have an enormous amount of information with which they can make better-informed decisions and guide you appropriately. You do however need to develop your own knowledge, as ultimately you are responsible for your money. 

Uncertain times present opportunities. A market decline is a good time to take advantage of the lower prices. If anything, this should be considered an opportunity to invest in strong companies at significant discounts. Bear in mind that stock market investments require a long-term perspective. In the short term the market can be volatile.

Invest regularly. Establish a systematic investment plan. Through cost averaging you buy shares on a regular basis, say monthly, or quarterly. This means that one buys stocks when the market prices are low as well as when they are high. Over the long term you end you lower your average cost.

Protect what you have. Review your home, health and life insurance coverage. You want to know that if your household faces a financial crisis, you are protected.

Stay focused on your goals. If you keep them in mind and work towards your master plan you wont be easily derailed by market hype, volatility, inflation, devaluation, political uncertainty and insecurity. The best way to weather economic and political uncertainty is to protect what you already have and cut back on your spending. Economies are cyclical and downturns are normal. If you are disciplined with your finances and stay focused on your goals when times are rough, you are more likely to come out relatively unscathed when the climate begins to turn around.

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