We held a Twitter Chat to discuss practical ways to stretch your finances this trying season. In case you missed it, here is the transcript of the questions you asked and the answers we shared:
ON FINANCIAL PREPAREDNESS
Question: How can I increase/optimize the financial resources available to me during this time?
- Start with a budget outlining what you MUST have and how much that would cost you.
- Cut unnecessary expenditure such as ordering in.
- Build the discipline of saving; save more and spend less,
- If you can, then come up with a new income flow to supplement your salary if you are salaried. You can fine-tune your hobby and monetize this or upskill yourself through online learning opportunities
Question: What’s a proper emergency fund? How much would constitute a sufficient emergency fund?
Response: It is recommended that one should have the equivalent of six months of household expenses/budget set aside for emergency. A good emergency fund is a near-cash that is a cash buffer that one can easily access when a need arises such as in cash deposits or a Money Market Fund, or.
Question: Is it possible that the economy (global or local) might go into a recession following the current covid-19 crisis and if so, how can I best prepare myself to survive it?
Response: You’re right, the world economy is going into recession; the International Monetary Fund (IMF) has predicted a -3% recession. Some of the things you can do include keeping your savings close, setting aside more cash buffer in case your job is disrupted or in the unfortunate chance that you lose it, and learn a skill you can use to earn income.
ICEA LION TIP:
- A budget in good and bad times, allows you to exercise the discipline to spend only what you must. Don’t wait for the wallet to dry-out to instigate budget cuts as that may cause a lot of distress to you and your loved ones. Be modest from the onset.
ON LOANS AND PAYMENTS
Question: Would it be wise for one to default on paying the mobi-loans and instead save the cash – Just during this period given we cannot predict the uncertainty that might come after this pandemic?
Response: We advise to honour your obligations. If you can find other areas of cutting costs and still payoff your debt, then that is the best course of action. Remember that you may need to call a debt from the same company in the future.
Question: Would it be prudent to reduce SACCO contributions now in anticipation of salary reduction next month? Should we maintain the contributions and contract spend to the equivalent of intended SACCO reduction?
Response: If you have no other way to survive, yes, but we advise you to always cut costs before cutting savings. In the event you go down this path, then don’t be quick to spend the cash, you can consider re-route it to a near-cash investment pool, like a Money Market Fund.
Question: Would it be a good idea to take advantage of the current suspension of CRB listing to get a loan in order to supplement my available pool of resources?
Response: What are you borrowing to do? Borrowing to consume on items such as food, airtime, entertainment subscriptions is very dangerous, especially in the period we are in. Remember whatever happens it will still be you to repay the loan. Avoid it by all means, if you can by ensuring you live only within your means. If it is a loan that will help generate new income then one can go ahead, albeit cautiously.
ICEA LION TIP
- If you are a tenant and work in highly impacted industries like airlines and hotels, consider moving locations to an affordable place or paying up several months of rent in advance before allocating finances to other expenses. Engaging your landlord for a temporary reduction in rent is also a viable option. This will spare you extra strain on your savings.
Question: Despite having lost substantial amounts due to the effect of the pandemic on the stock market, some long-term investors may be in emergency need of investment to safeguard themselves. Are there any short-term high return investments you can recommend for say 2- 5months etc.?
Response: Short-term investments are not your highest earning investments. If you do come across one of these, it should raise your alarm because more often than not, they tend to be Ponzi schemes.
Question: Which is riskiest right now; Equity Fund, bonds or Money Market?
Response: Equity. The price volatilities are quite high and investor confidence has reduced. That being said, it still presents an opportunity for a long-term investor.
Question: Would you recommend stopping any capital expenditure at this point even if I have huge savings?
Response: Not necessarily. It depends on the outlook of where you’re deploying the capital; if it is being invested into something like tourism, no, seeing that it has been heavily disrupted. If you are investing in a field that’s doing well even under the current situation such as medical or technology, then go for it.
Question: Is it a good time to buy a piece of land? I have been saving up to buy one for a couple of years.
Response: Property markets have had a major hit, and prices are likely to continue tanking. There could be more opportunities ahead, and therefore you should practice cautious buying. Establish if it is a necessary buy by asking yourself what the end goal is; is it speculating or development?
Question: Is this the best time to invest or should we wait a bit more. In addition, is it better to get a mortgage or just save up and buy cash?
Response: If investing in the financial markets, there is opportunity but take it cautiously. If you are cash rich, buy cash, but if you are cash flow driven then a mortgage is a good option; and remember mortgages do give you an option to pay it out earlier.
Question: If you have shares, what are you meant to do? Sit and wait for things to get back to normal?
Response: In the current market, and if you have invested in fundamentally strong companies it would be good thing to ride the storm. You could also accumulate more during this low-price time we are experiencing, thus building a big portfolio for the future.
Question: What happens when one has suspended shares? What should an investor do?
Response: We are sorry to hear about this, unfortunately, there is nothing much you can do until the Nairobi Securities Exchange lifts the suspensions.
Question: Would you advise to buy shares now or sell and buy later?
Response: We advise that you buy cautiously and in a calculated manner. The market prices are at a low which makes it a good time to start accumulating. However, be cognizant of the uncertainties of the economy going into the future; only buy if you consider yourself a long-term investor.
ICEA LION TIP
- If you are a financial markets investor, you may have seen by now that global markets have gone through a meltdown. Your investments (especially in equities) have lost value at an unprecedented rate. To give you some color, Nairobi Securities Exchange is -24.6% down Year to Date (April 2020). In short, investors have lost more than a quarter of their invested capital. We urge you not to panic. In such volatile times investors may overreact to the loads of news hitting the markets. If you are a long-term investor “stay the course”. This season can present an opportunity to buy low and cost-average your portfolio. Darkness will fade and the light will dawn. Nothing lasts forever.
ON THE ECONOMY
We understand that this is a period that nobody had planned for, and if you have any questions regarding these topics, you can reach out to us on any of our social media platforms and we’ll be glad to help you.
Stay Home, Stay Safe.