A story is told of a horse that suddenly came galloping down the road and on it a man who seemed to be in quite some hurry to get somewhere. A friend who was standing alongside the road shouted, “Where are you going?” and the man on the horse replied, “I don’t know, ask the horse!”

Do you have short-term, medium-term and long-term financial goals that are well-written and reviewed often?

If your answer to my question is nothing other than ‘yes’, you could be aimlessly galloping about, not sure where you are headed, just like the man atop the horse. Do not be like this man. Failure to make a deliberate decision to determine what you want to achieve will lead to little tangible progress. Create some quiet time and have these written down. Paint your financial world as vividly as you can and do not be afraid to make your goals audacious.

The starting point…

You must determine where you are (your current financial status) before you begin to pursue the path to your financial destiny. To answer the question “where am I?”, you must look at two aspects of your finances:

1. What you own and what you owe
2. What you make and where it goes

We will deal with the first aspect in due course; let us begin with the second.

You know what you earn, right? This is no trick question; I have met many who don’t. My gut feel is that you do…but just in case you don’t, it is important to know your take-home income. List all your income from various sources to have an idea.

Now that you know what you make, do you know where it all goes? Every cent? Here is where most go wrong. I too am sometimes guilty of this.

Expenditures should fall into two basic categories: fixed and variable. The fixed expenditures are those that will continue to occur each month whether you have income or not – such as rent or mortgage payment, car loan repayment, insurance, and so forth. The variable expenditures are expenses that you can control from month to month. They include expenses such as food, personal grooming, entertainment, etc.  If your finances are out of control, there is a good chance that you may not be totally aware of how much you are spending on variable expenses.

Developing and implementing an effective spending plan, budget if you like, should help you know exactly how much you have coming in and going out each month. If you don’t have a budget, you have no idea whether or not you are living below your means.

 Financial hacks this Covid-19 season

Since the first Covid-19 case was made public in Kenya, our lives were disrupted. We have had to adapted to new ways of doing things.

In these uncertain times, it is important to be prepared and careful. With careful preparation, you can turn a potential financial tragedy into a mere temporary setback.

You will need to make adjustments to how you spend your money while living in these times of uncertainties. Here are some tips:

1. Rework your budget based on your current income and split your expenditure into 2 categories:

• Essential – includes food, shelter (rent or mortgage repayment) and transport
• Non-essential – includes magazine and premium cable TV subscriptions

For now, limit your expenditure to the essential needs. Cut out anything that is not a necessity. If you keep your recurring monthly expenditures as low as possible, you will have less difficulty in paying your bills when money is tight.

2. Maximize your liquid savings – In the event that your income has been negatively impacted e.g. due to a pay cut or even job loss, your cash and near-cash investments (e.g. money market accounts and short-term government investments) should be the resources you turn to first. Unlike stocks and other longer-term investments, you can take out your money at any time without incurring a financial loss like early withdrawal penalties. On the same note, do not invest in higher-risk investments such as stocks until you have several months’ worth of cash needs in liquid savings.

3. Tame you utilities – We are spending a lot of time at home since the government’s directive to allow only those providing essential services to physically report to their offices. Though this has resulted in a drop in some expenses like transport (fuel/ fare) it has also led to a rise in some like food and some utilities like water and electricity.

If you are in the habit of leaving lights on in rooms that you aren’t using or of leaving the heater or other gadgets on while away, now might be a good time to stop. Also, ensure to pay your bills on time so as not to incur unnecessary expenses or penalties such as late fees or finance charges.

4. Negotiate loan repayment terms – Banks have relaxed their terms and allowed customers seeking flexible terms to restructure their loans. Some have offered repayment breaks of up to three months. If you are in a tight cash position and are unable to service your loan(s) promptly, this may be an avenue to pursue. Talk to your bank for flexibility in repayment to avoid any default.

Once the crisis is behind us, abide by the repayment agreements agreed upon with your lender.

5. Comply to avoid getting into forced quarantine – Other than getting into the risk of contracting the corona virus at quarantine facilities, if caught flaunting the government’s directives (e.g. disregarding the social distancing directive by attending a party) you could suffer financial and time loss. Stay compliant. Keep safe!

So let me ask once more, “What would you like to see in your financial world?”

This crisis caused by the Covid-19 pandemic will soon be behind us and we may never experience one like it in our lifetime. I am positive that we will overcome and come out stronger. Use the current situation as an opportunity to think about your financial strategy. Does it lead you closer to or further away from your ideal financial world? If not, you may need to make adjustments to how you manage your money.

 

This article was written by Gladys Kamau – Juma. She is a lecturer at the Strathmore Institute of Management and Technology, Personal Finance Literacy and Wellness Coach, and author of two books – ‘Managing your Finances God’s Way’ and ‘Smart Money Habits’.

 

Would you like to share your experience of living through the circumstances brought by the Covid-19 pandemic? Kindly email: communications@strathmore.edu