Don’t waste this crisis

I want to wish all my readers a Happy New Year 2016 – a year you will ride the storm to greater heights rather than retreat further into your comfort zone and get buried deeper.

The year 2016 is finally here. The Christmas and New Year celebrations seem to have been more subdued than last year. In Lagos, the traffic was still heavy after Christmas day, unlike in previous years. This means fewer people traveled this year. Our boom period is finally over, for now. It reminds me of a book I read many years back in school – Memories of our recent boom by Kole Omotosho. There is fear and apprehension as to what 2016 may bring, with banks sending emails each week advising customers what the current limit or new restrictions are on naira-denominated debit cards.

Many who traveled abroad banking on making a payment with their cards have been put in embarrassing situations with payment on their cards declined at check out. There seems to be confusion as to where we are with respect to how much one can travel abroad if personal and business travel allowances remain untouched, have been reduced, or have gone with the wind. We don’t need a prophet to tell us that we are in for tough times ahead as a nation. We are in the middle of a self-inflicted crisis. How we got here or who is to blame is not of much use as we are already in the middle of it. The key issue is – how do we get out of this?

Different strokes for different folks

This crisis affects each of us differently. Those whose budgets are funded mainly from returns from the money market are seeing their income being slashed by almost half as rates tumble. The stock market is not faring better. For those who travel to Dubai etc to buy and sell, or bring things in for people who shop online on foreign websites, the restriction on the usage of naira-denominated debit cards is a major blow. Everyone who has something to do with foreign exchange in one way or the other has been affected. Businesses will also feel the pinch as people cut back on spending. Jobs may be affected.

There is nothing to get overly excited about or go into panic mode. Like markets, the economic crisis comes in cycles. This is not the first, and will very likely not be the last. Like sunshine and rain, economic storms are simply doing their job – coming to test your foundation and structure. The rain comes to test your covering. If you get wet while in your sitting room watching TV, then your roof is leaking. It is a signal to get the hole patched, not just move furniture around and place a bucket under the leak.

If the inspector, examiner, etc do not come to check on you once in a while, you will feel cool that you are doing just fine. If we recognize this crisis for what it is – a stepping stone to greater heights – we can use it as leverage to make painful changes that are required to launch us to the next level, a level that this kind of storm next time will have limited impact.

The principles of sound personal financial management hold true in crisis times

The basic principles of sound personal financial management hold true in the midst of financial storms. There are a few situations where it no longer holds. I will give two scenarios. War is one of them. If bombs are dropping, bullets are flying and your life is at stake, nothing else matters. The bank or your broker may not be available to attend to you. The second scenario is when you have a serious health crisis that goes beyond what your insurance or reserves can handle. At times like this, your case is in God’s hands. These are some examples of exceptions, whereby you do not need to practice asset allocation and build a financial structure that can withstand typical storms.

Don’t panic

This is not the time to wipe out your savings or money market portfolio because the rates are down. This is not the time to sell off your shares unless you were in only for capital gain, and you believe you need to cut your losses and run as you can’t tell where the bottom is or when it will rise back up again. For value investors, this is the best time to get in to invest in solid companies that will still be here and doing well long after the storm is over.

This is the time to act, not react. A crisis period is a time to do the right things (which you have not been doing), rather than go into reaction mode, moving your fixed-income portfolio into speculative investments that can wipe you out if it doesn’t work out as planned. You need all types of investments, but in a proportion that meets your financial goals, not your fears. This is the time to think, study, and be guided.

This is the time to get moving with that business you have been procrastinating on, especially if it is that which will create value and conserve or earn foreign exchange. This is the best time to earn dollars. Apart from the fact that you will make much more naira when you change it, you have enough to spend abroad without your bank telling you how much you can spend in a day or a month.

Like everything that has a beginning, this too shall pass. That is not debatable. The issue is, by the time this is over, have we as individuals (and by extension the nation) made maximum use of this crisis, or allowed it to waste? It is a personal decision to make.