Dear Readers, I received some questions from a follower based in South Africa and decided to share my responses with others who may have similar questions. I hope you find my responses useful. Send your feedback in the comments section beneath the article. If you have different questions or want clarity on the responses provided, send me a mail @ firstname.lastname@example.org.
- Given the current circumstances, covid19, is it even possible for one to save up some money?
• Building up Savings depends on personal circumstances.
• Has COVID impacted your sources of income? Did your income drop?
• Savings is possible under any circumstance.
• You cut down on unnecessary or ostentatious expenses and simply spend on basic and survival needs.
• The best tip to saving is; to check your spending pattern and identify expenses you can avoid and save on those costs.
• Covid means most people stayed indoors during the lockdown. While this helped save costs like entertainment, partying and fashion related costs, other costs increased. These include feeding, internet, heating, electricity, and other home related costs.
2. Can saving up money be possible for someone with an average income job in South Africa? • Savings is possible by anyone and at any income level. If you earn 1000$ monthly and were surviving at that level, best saving trick is to imagine you earn 90% and save up the 10%. You automatically force all your expenses within the 90%.
• Due to the impact of COVID on businesses, some employers here in Nigeria reduced salaries instead of terminating employees. These employees have no choice than to live within the new salary levels. That is the same principle that helps you develop a habit to save.
3. Please give step by step tips on how to save money while settling your debts and how to get started.
• Aggregate and know your entire debts
• Classify them according to the cost (I.e. interest expense)
• Identity the most expensive debts
• Establish amount of your earnings available for debt servicing and savings – Ie how much of your income do you have left after settling your living expenses?
• Out of these available funds, agree what you want to apply to debts and the balance goes to savings.
• I recommend sending a bigger chunk to settling debts vs what you save. This is because the faster you pay off your debts, the more allowance you have down the road to save and invest without owing.
• Ensure you consider interest expense vs interest income. Ie what will you get from savings vs the cost of your borrowing. The only savings encouraged when you have huge debts to pay, is if the cost of the borrowing is less than the interest income you can get from savings.
4. How can one successfully reach their savings goals amidst covid19?
- Good habits to achieve savings goals are the same pre-Covid, during and post Covid.
- Create a budget – know what you earn and where your money goes to.
- Track all your costs and identify areas to save costs.
- Be disciplined and stick to your budget and plans.
5. What is the difference between saving and investing?
• Savings is setting money aside from your earnings towards a goal
• Investing is applying the saved-up funds to acquire an asset by putting the money in a financial venture (acquisition of shares, stock, property or other assets) with a view to making a profit and more income.
6. Is there a possible investment advice you would specifically give to someone, drowning in the financial crisis caused by the pandemic?
First establish what kind of financial crisis? Is the crisis of of ‘increased debts, inability to settle debts and loans? or loss of business related revenue and profit? etc. If by financial crisis, you mean someone losing money, the best advice is to ensure you preserve the value of what you had pre-Covid. Tread carefully when offered new business opportunities.
• Investment is only possible when you have good cash flow in which case, you apply the usual investment rules – which are:
• Don’t invest without understanding.
• Diversify your investments to distribute your risks.
• Review your investment portfolio periodically.
7. How can people protect their credit score during these trying times?
• Promptly meet your payment obligations.
• Negotiate new payment terms with lender where you can’t meet up payment deadlines.
• Avoid increasing your indebtedness and refrain from taking additional loans.
• If you have credit cards, make sure you work with a utilization ratio below 80% of approved credit line.
If you have different questions or want clarity on the responses provided, send me a mail @ email@example.com.