Saturday, 3 September 2016

Must Read Article: Recession, Personal Income And Planning

All economic indicators have shown that economic conditions are going to be a lot tougher in the months to come. The level of economic uncertainties would gain momentum, as recession shock waves spread across the nation. The economic buffers from FG are yet to be rolled out against the impending economic problems. This means, you are all alone to fight this for now, even with less money to spend due to high inflation and growing cost of core basic needs like Transport, Drinking Water, Feeding, Rent, Clothing, Electricity, Waste-Disposal, Children School Fees and Healthcare. You will agree with me that there is need for a detailed PLAN to survive the approaching storm.

On this, I would like to relate and share my personal approach and strategies that i have taken already and the ones I would be taking towards tackling the looming recession. For me, I would be personally experiencing double recession because I have consciously put myself into recession mode long before now- just for two reasons (1) the issue of fixed salary for a very and too long period (2) my nature.

Also, it is important to let you understand my mindset, which dictates my financial planning & spending habit. I am a highly conservative, prudent person; I focus only on NEEDS (mostly basic needs) not FRIVOLOUSNESS. I love and enjoy taking my responsibilities serious. I believe so much in quality education, quality living environment, quality feeding and quality healthcare simply because i want to consciously raise my child(ren) better than how i was raised. I don’t party and i am extremely ‘old-school’ towards clothing/outfits and personal effects. I hope you now understand my idea of ‘double recession’ more clearly. 75% of salary is on quality basic needs month-in-mouth-out. Don’t focus on my boring life, pay attention to how you can tackle the impending recession. In the table below, you will figure- out how i financed all my responsibilities with flat, steady and regular salary.

The Need for Personal Economic Master Plan is Urgent
Let me first warn you that as an employee or salary earner, don’t underestimate the need for detailed financial plan. You will seriously need your Personal Economic and Financial Plan in place to quickly reorganise, readjust and reposition yourself before the impending economic woes fully gain momentum. If you don’t have one, please you need to have it NOW. Also, it is important you know ahead that the tide is already against, as you are treading against many odds and you will have less 'Real Money' and less Purchasing Power to fight this battle alone because of the impact of growing inflation rate, devaluation of naira and other regular deductions from your fixed salary. You are not earning N200,000 per month, your actual income is N137. 226 monthly. Table 1 below puts this in proper perspective.

What do you plan for?

The need to plan for emergency fund is extremely necessary during recession: Setting aside certain percentage of your income is very important Not only during recession, but it makes more sense during economic adversity. No matter how small, it is more necessary than important to have an emergency fund- even if you are still going to borrow, you are already half-way.

Let me relate how i manage my emergency funds for example. My emergency fund is diversified. It is always in T-bills and Dividend paying stocks only. I do as low as N10,000 monthly into T-bills and N10,000 into Stocks as well but occasionally, i do lump-sum. The beautiful thing about my emergence fund is that it retains value against inflation. The reality was dawn on me when my mother was on a sick-bed, the emergency funds and support of well-wishers helped me a lot in handling the initial deposit at the hospital, paying for CT-SCAN, MRI-Scan and series of lab-test. Then, I realised the usefulness and importance of emergency funds. Those with strong emergency funds have greater chance to survive a recession. See table 2 below for personal income planning

You need to plan your feeding with Daily-Food-Roaster: This allows you to eat healthy and have an helicopter view of your feeding cost at a glance, in which you can always adjust to suit your current financial status. It does a magic when you need to cut-down on cost or substitute. See table 3 below

Other Things you need to do along with planning
Need for passive income: Another source of income would help you greatly, any passive business that can give you at least 25% of your monthly income would be a great idea to explore this time of recession. Affiliate and network marketing are very good example. If you like to write or read, you may consider blogging to share your passion or knowledge. All these would not cost you more than your past time. For me, i put money in my wife's paper business occasionally. As she is selling, my money grows as well. The beautiful thing about this business is that dollar determines the price, as dollar appreciates against Naira, she adjusts price once her supplier adjusts price. In a way i still retain value of fund.

Readjust Spending Habit and leave within your means: The best way to avoid growing debt is to leave within your income and means. The main reason for this is simply because the prices of basic needs are not always stable during recession, they tend to go up often and this may lead to borrowing in if you have not disciplined yourself to leave within your means.

Reduce Expenses & Cut-down on debt
First, focus on your needs NOT want. I strongly suggest you reduce your debt, particularly the high interest debt. It is not advisable to go into recession with such debt, do everything possible to pay down your debt because rates/interest would swing northward during recession and that would result in a counter-productive situation as your monthly expenses would surge. I make use of no-interest loan a lot, you can make use of it to settle high interest loans. Islamic cooperatives/finance is remarkably and fantastically great in this area of no interest loan.

Learn how to negotiate, re-negotiate & use leverage
It is important you try to acquire negotiation skills, it will help you greatly during recession. Recently, I aggressively renegotiated my Daughter school fees from 300k to 236k in a New High School- I first renegotiated school-bus from 45k to 30k(to and fro), then later argued 15k for one-way since my house is just N100 away to school. I also asked for 2 instalment payment – cash-payment of N200k and 2weeks post-dated cheque for 36k. All this is just to re-align my cash-flow to meet my obligations. Throughout her primary school, i negotiated for monthly payment of her school fees with school. It is important you always negotiate to suit your cash-flow.

As you’ve read about my personal experience, I would also like to encourage you to share your experience with me on how you have been surviving in these times, the options you have taken and what more would like to know.

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