In the spirit of Mutahi Kagwe’s famous words “If we continue behaving normally, this disease will treat us abnormally”.
The onset of the COVID19 pandemic has brought about a necessity for adjustments in our day-to-day life. The most important adjustment is our personal finances and spending habits.
Having looked at the effects of the COVID19 pandemic. Here are some recommendations on how to go about financially adjusting our lives;
Examine your available financial resources
The pandemic has brought its fair share of business closures, leading to massive lay-offs and workers being sent on unpaid leave. Therefore, it is imperative that you check your job security and the likelihood of taking unpaid leave or being declared redundant. Also, if you have a spouse, engage your spouse on the same and try to identify the financial strength you can draw together.
Confirm on whether your business or what you do for a living is a non – essential service and if it will have to be closed for some period of time. Furthermore, it is time that you revisited any emergency fund and savings account you may have accumulated in the past.
Furthermore, it is critical that you invest some funds to ensure you are still earning some money. I would suggest investing in a Money Market Fund where you earn a good return and you have access to your funds anytime you need them. Investing is important but being able to withdraw your funds should an emergency come up is important.
Create a priority-based spending plan
Look at your monthly expenses on household commodities. Try to limit unnecessary spending and cut back on non-discretionary expenses which mainly include: Gym membership, appearance maintenance, Restaurant meals, Local and international travel, reduce purchasing of premium brands of commodities including Clothing, shoes and also reduce on subscriptions not necessary during this period example; Sports channels. All this money should be redirected to savings.
Contact your creditors
The Central Bank of Kenya (CBK), and banks agreed on the need for borrowers to renegotiate loan terms. If directly affected by COVID you can engage your bank to renegotiate your loan terms, including mortgages and asset finance facilities. Engage your landlord as well in the event that you foresee not meeting your monthly rental payment obligations.
Revisit your medical insurance coverage
Review your health insurance coverage by making sure that your NHIF and medical insurance premiums are up to date. Counter check on who among your family members is covered and the Co-pay terms for out of pocket costs, so as to avoid surprises in case of sickness. Inquire from your provider on what types of treatments are covered in the plan? Check if there is any effect if the medical insurance was company provided and you are laid off. Lastly, for any life insurance – Check on the list of beneficiaries and update it.
The specific Don’ts
Avoid getting into more debt – There is the allure of mobile loans, credit cards, or any other easily accessible loan facility. Take debt only when necessary and have a payment plan in place. Do not draw money from your pension plan – COVID19 is a short-term disruption that should not interfere with your retirement savings.
Lessons learned going forward
Always build and maintain an emergency fund – This usually helps reduce financial vulnerability in times of difficulty cushioning against a sudden stoppage in income. The best-recommended target is a savings of 3- 6 months which gives you breathing space to adjust. Money market funds provide a good avenue for savings platform that could fetch you a good return. Also, create a low – consumption and high savings budget; Post COVID19, consider spending less on non-discretionary items e.g. Leisure travel, spontaneous buying, and social spending. Always remember to treat your savings as part of your expenses rather than an afterthought on what is left of your income.
The recommendations above may appear hard to maintain, but it is a sacrifice we have to consider. I remind you of Mutahi Kagwe’s famous words “If we continue behaving normally, this disease will treat us abnormally”.
Written by Solomon Kariuki, a financial consultant at Cytonn Investments