I wrote the first part of this article in January 2016 as we ushered in the New Year. Things had not degenerated to this level yet but the handwriting was on the wall. Rather than focus on solutions, many are busy complaining and apportioning blame. Some actually believe that this would have been avoided if another party has won, These are all normal human reactions.
Knowing how we got here is useful. But it does not stop there. Knowing what to do to get out is even more important. A crisis is like an audit to check what you have on the ground. The rains come to check your cover, and if your roof is leaking, it will show you where. The storm comes to test your structure. If it is faulty, it will show you where the extent of the damage. You have a choice after the result is out. Learn and fix the problem or blame and live with the damage. No manufacturer releases a product in the market without testing.
For every model of an automobile for release to the market, a prototype is sent to the crash laboratory to be tested. Concrete blocks are sent to the laboratory for strength tests. In each laboratory, the intensity of pressure/force is increased till the product is destroyed in order to determine its maximum strength and if t is fit for purpose. Life is not a walk in the park. You have to be tested once in a while. If you are not ready, the results will show.
I was moved to tears a few days ago while we sat in a group discussing the level of hardship in the land and what can be done. Even the middle class is also hurting. The rich also cry. What families are going through is avoidable if husbands and wives come together to build a solid financial foundation. The economic downturn comes in cycles and if we do not prepare for them, we will be slammed again and again. Since I started this column, I keep emphasizing the importance of a solid financial foundation and the need to achieve financial independence. For now, that is water under the bridge. The key issue now is; where do we go from here?
Return to the basics
The basic principles of personal finance hold true in times of economic boom and bust. If you are familiar with the story of Joseph in the Bible (Gen 41); the Pharaoh foresaw through a dream seven years of abundance followed by seven years of famine. After Joseph interpreted the dream and was appointed to execute the solution, he established what we would call foreign reserves, excess crude accounts,s and sovereign wealth fund (grain reserves in his time) where 20% of national income (harvest) was domiciled (reinvested and compounded).
The seven years of abundance were experienced globally, not just in Egypt. Leaders of some nations would have said ‘our problem is not money, but how to spend it’. So spend it they did, so much so that by the time the seven years of abundance rolled past, there was no indication in the balance of their recent boom, except a luxury lifestyle and expensive toys which could no longer be maintained.
By the time the seven years of famine made landfall, everyone rushed to the Egyptian embassy to look for visas to go to Egypt to get grain. This story is more than 2,000 years old but the lessons hold true from generation to generation. In times of plenty or normalcy, save and invest. Spend below your income, no matter how low your income is. Invest the difference (saving before spending) and build it to the point that you can live on the interest, and if you are not strong in business (yielding multiple streams of income), build it till you can start to live on the interest on the interest (i.e. consume the ‘grandchild’, not the ‘child’ or ‘parents’).
It is not too late to learn this lesson. You made a mistake. Don’t beat yourself up. Yesterday is gone. Pick yourself up and start doing the right thing, no matter how humble the new beginning.
Beyond survival
Many are being forced to adjust, not because they have learned their lessons and are putting their house in order. They are adjusting because they need to make ends meet. They have learned nothing and when things get back to normal, they may return to their old ways – making ends meet by consuming all they earn.
A game of musical chairs is going on across many sectors. Parents are moving their children to very expensive schools to moderately expensive schools. Those in averagely expensive schools are moving to averagely expensive schools. It goes on and on till those in cheap schools move to public schools (that were hitherto despised). The same is happening in the rental market. Folks are moving from Lekki to Lagos mainland, while those on the mainland are moving further in, some to Ogun State or further, etc. There is a lot of realignment going on. The problem is, this realignment is not to free up cash for saving and investment. It is to bring them back to the point of equilibrium, where the amount spent equals the amount earned. Financial progress made equals zero. These realignments ought to have happened before the storms, as families institutionalize a saving and investment culture (and also make sure they have adequate insurance so that an event outside their control does not send them back to square one).
This is the crux of this article. In the midst of your alignment and realignment, don’t forget number one – diversify your sources of income and save before spending. Nigeria has been mouthing diversification for decades and it seems the pain is finally enough to make us change. While running commentary on what the government is doing, what are you doing at the individual level? Are you putting your financial house in order? Go beyond survival to growth sustainability.
This recession will be over someday. Nothing lasts forever. The challenge is, after this blows over, would we have learned our lessons? If we don’t, then we would have wasted a golden opportunity to get our act together thereby allowing history to repeat itself when another recession comes along.
I do not know how you do it but you are a wonder. ‘A crisis is like an audit to check what you have on ground’. Thanks for your write-ups.
These are wise words. It is always smart to ensure you are saving before you are spending. In essence, living below your means. Diversification of income can also be the difference between being thrown out on the street and maintaining your lifestyle through a crisis!