I met up with a friend recently. I had considered an excuse but since we hadn’t seen in a while, I agreed to meet. Before the meeting, which was on a Friday night, I made sure I had something to eat and drink so I would not need to buy anything at the venue (I’m really not a ‘cheapskate’ just frugal).
During the course of our conversation, she mentioned that a gentleman she had been speaking with, before I walked in, had to lay off over 20% of his employees as a result of the current situation. This may seem small but when you consider that he had a staff strength of over a 1000, it adds up.
You must have heard the recent references to a recession, it has echoed through the walls of offices, shops, schools and even our homes. It has also created a whole new clan of amateur economists.
According to data by the National Bureau of Statistics, the Nigerian Gross Domestic Product (GDP) declined by -2.06% and the economy by 0.36%. In economic terms, back to back decline in the GDP per quarter signifies a recession.
We are also experiencing a cost push inflation, which in our case seems to have been caused by the increase in cost of production/sale of goods as a result of currency volatility (a problem for import dependent countries) and reduced supply.
The bulk doesn’t stop with Nigeria, Eduardo Porter of the New York Times believes another cyclical downturn will happen in the near future.
The discussion with my friend was a key reminder that we are all in this together and need to help each other. There are so many who are not only confused but not sure of the best way to approach this. I want to help you understand what we can do at this time and ensure we are not only prepared but are also able to weather the expected storm.
Here are a few things you can do in a recession
Before I discuss some of these tips, one major thing I need to emphasize is the need to stay calm.
There is an understandable tendency to be fearful at times like these with tales of high unemployment, crime, reduced productivity and fewer funds in circulation. I need you to remember not to panic.
1. Spend less
One of the central tenets of personal finance is to spend less than you earn, regardless of how much you earn. If what you spend is at pace with what you earn, you are invariably living paycheck to paycheck and when that cheque stops, your lifestyle will definitely crumble.
I know living in Nigeria is stressful, it can all seem too much at times but the fact remains that this is the time to tighten the purse strings. This is the time to say no to a lot of things you may want or think you need. Going out for drinks which may douse the ache temporarily will only lighten your pockets and you don’t need that now. Temper your spending with caution.
A quick tip is to ask yourself if you need to buy the item or service. You could also try the 60 second rule (wait for 60 seconds and see if you still want to make the purchase) you can wait more than 60 seconds. I usually do a full blown analysis for most things. I consider the pros and cons of such a purchase. Trust me, it may seem excessive but I typically save more and feel smarter (win-win).
Reminder: Always live below your means
2. Delayed gratification works
Have you ever heard of the Marshmallow Test? The first time I read about it, it felt like a light bulb went on in my head.
Quick Facts: an experiment conducted by Walter Mischel (a psychologist) on kids over 40 years ago. The test basically found that kids that were able to wait awhile to eat the marshmallows did better later in life than those that ate it immediately. You can read more here.
Beyond this test, I have seen that when you are able to control your emotions and spending urges you are definitely better for it.
Do you really need that fancy wristwatch, high-tech phone or a host of other things you seemingly deserve?
This is the time to exercise the much needed self control.
3. Save more
I know, you may wonder why I will suggest this when there’s barely any money but saving is an act you need to do in little and in plenty. So, how does one save money when there is barely any more to save? If you follow tip 1, there will be some money left. Save it.
4. Create an Emergency Fund(EF)
I also call this the necessity fund. In an ideal world, emergencies and unexpected events do not occur. Since we are so far from this, an emergency fund provides that buffer. Ordinarily, you should have already had one in place but even if you don’t, that’s fine. It’s not too late. Start now.
Due to the nature of an emergency fund, it is better if it is separated from your normal savings as it is money set aside for unexpected expenses or events (which we both know will always occur). I would suggest you grow your EF to about 6 months of your living expenses.
5. Consider other Income Streams
This is the era of generating a side income and it seems it has come to stay for the foreseeable future. In my parents’ time, it was about building a long career doing one thing and probably working for the same employer but things are clearly different now and it will be wise to be in tune with the times.
Have you considered things you can do in addition to your day job? Do you have any skills or talents that you are yet to develop? It doesn’t even have to be something you are passionate about. Uber seems to provide such an avenue for a person with a good car and spare time. Online businesses seem to be a big hit right now. Ever considered blogging? You can read my post on why blogging is great but hard.
Here are four things that set us back:
♣ The fear of success
♣ Fear of failure
♣ Superiority complex – a belief that some things are beneath us
♣ Undue concern of the opinion of others
Try not let any of these hold you back from doing all the amazing things within you and of course, achieving your goals and hitting your financial targets. A few years ago, I allowed many of these self-inflicted limitations stop me from venturing out. Now, I actively seek for interesting things I can do.
6. Prepare a Plan B
What would you do if you were laid off from work or your office had to shut down? This is the time to consider your options and what else you can do if your present occupation or circumstances change.
You could start by scanning your industry/sector to see what opportunities are available. You can also scan the wider market to get a sense of what you can do. There are a few forums where opportunities are discussed. There is Quora which is international forum and of course, Nairaland. I have learnt so much about farming on the Nairaland forum.
Have I spelled gloom and doom? Hope not. The good news is that the recession will not last forever. Recessions are cyclical. I do hope it will end sooner rather than later and the government will take the necessary steps to get the economy back on course.
Whatever happens, we really need to push through. Imagine the stories we will tell our kids on how we survived the ‘great’ recession. Remember to Spend Less. Save More. Earn More
I hope you’ve found these tips useful and you are able to implement them. Please send in your comments, suggestions and questions and I will be happy to help.