Compiled by Angela Mutiso
Building a Safety Net
The global economy is almost always in a state of transition, and Kenya is no exception. As a developing country, Kenya is particularly vulnerable to economic shocks. With the signs of an impending slowdown in 2023, it’s important for both individuals and businesses to prepare for the impact it could have on their finances, including employment income, and investment portfolios. A financial slowdown is a real possibility, but with a little foresight and careful planning, it’s possible to weather the storm and emerge in an even stronger position.
Regardless of whether you’re a seasoned financial expert or just starting to build your wealth, it’s possible to stay ahead of the curve and take control of your financial future in case of an emergency by saving money, investing wisely, and managing debt. Let’s look at these strategies in more detail:
Set Aside an Emergency Fund
How much money should you put aside? Aim for at least three months’ worth of living expenses (if you earn ksh 100,000 per month and spend ksh 80,0000 per month already, that means you need to have around 300,000 saved up). If you’re reaching retirement age this year but haven’t been able to save enough for it, the future might look a little uncertain for now. You’ll have to be very mindful of your expenses, and probably put in twice the effort into saving as someone who hasn’t reached retirement age.
Try to stretch every shilling to cover all your necessities like food, bills, and debts. It’s not an easy task, but it’s not impossible. In these trying times, it’s also important to be prepared for any unexpected events that may arise. Having some extra cash on hand can provide peace of mind, knowing that you’re equipped to handle any emergencies that may come your way. Controlling personal expenses is another a crucial step to maintaining financial stability. Instead of succumbing to the urge to splurge, consider innovative ways to cut back on discretionary spending.
Dine in instead of dining out, opt for a staycation instead of a vacation, and seek free or low-cost entertainment options. Don’t forget to focus on energy efficiency as well – simple changes to your routine such as using energy-saving light bulbs can make a big difference. By finding creative ways to reduce expenses, you can ensure a brighter financial future even during tough economic times.
Improve Your Skill-Set
With layoffs and cost-cutting measures affecting the tech and media sectors, the job market is becoming increasingly uncertain. To protect yourself from potential unemployment during an economic recession, it’s important to have a Plan B for employment. This includes updating your résumé to make sure it’s sharp and current. Additionally, consider investing in professional development opportunities through
your employer or through continuing education or certification programs.
By improving your skills, you can make yourself more valuable to your current employer or potential future employers. Taking part-time online courses is a great way to improve your skill set, and there are many websites and platforms offering a wide range of options. For example, platforms like Coursera, Udemy, and edX offer a variety of courses in areas such as computer science, business, and personal development.
You can also find specific courses on websites like Skillshare and LinkedIn Learning, where you can learn practical skills such as graphic design, data analysis, and project management. By enrolling in these courses, you can gain new knowledge and expertise in areas that interest you, while also developing new skills that will help you advance in your career. With flexible scheduling and access to a range of resources, including video lectures, interactive exercises, and discussions with instructors and other students, online courses are a convenient and effective way to invest in your future.
Keep an Eye Out For Unique Investment Opportunities
Investing your savings wisely is crucial, especially during uncertain times. History shows us that the stock market often experiences a downturn before a recession and rises before the economy improves, making it a good opportunity to buy stocks at a lower price. Tax-loss harvesting is a strategy used by investors to reduce their taxable income by selling investments that have lost value. By selling these investments, an investor can use the losses to offset capital gains they have realized in other investments,therebyreducing their overall tax liability.
This is particularly useful during market downturns, as it allows investors to take advantage of declining values and realize tax savings. The investor can then replace the sold investment with a similar, but not substantially identical, investment to maintain their desired portfolio composition. Tax-loss harvesting should be done in consultation with a tax professional to ensure compliance with tax laws and regulations.
Gold and other rare metals are also well worth considering as investments. They have traditionally been regarded as effective inflation hedges–that’s because, despite changes in the value of the shilling, they consistently maintain their value over time and protect your purchasing power. Kenyans looking to invest in gold now have a simpler option in the form of Exchange Traded Funds (ETFs) available at the Nairobi Securities Exchange (NSE).
This option provides diversified investment, traceability, and protection as the ETFs are fully hedgedunderlying assets. An example is the Barclays NewGold ETF. Each New Gold security represents 1/100th of an ounce of gold, held in a secure depository and backed by physical gold. The ETF tracks the price of the metal as listed on the London Metal Exchange and is sold in minimum lots of 100 shares equivalent to one ounce of gold.
Before investing, it’s advisable to reassess your investment strategy to ensure that it aligns with your current financial situation and goals. Rather than just investing in the stock market blindly, take the time to consider what you hope to achieve through your investments, such as setting up an education plan foryour children.
Start a Side-Hustle
Side hustles provide an additional source of income that can supplement your regular salary, help to reduce financial stress and increase your overall earning potential. This is especially true in the current economic climate, when job security is hazy. Having a backup plan is always a smart idea. A side hustlealso allows you to pursue your passions, tap into new industries and grow your skills, which can be valuable in both your personal and professional life.
Additionally, having a side hustle can lead to new business opportunities and could even turn into a full-time venture, providing a pathway to financial independence and freedom. There are several industries which have been identified by investment experts as being more likely to thrive, even in tough economic times. Here are some sidehustles one can start:
Essential goods and services:businesses that provide essential goods and services, such as grocery
stores, pharmacies, and home repair services, tend to do well even during a recession.
Remote services: With the rise of remote work, businesses that offer remote services, such as virtual assistant services, online tutoring, or website design, are in demand.
Healthcare: Healthcare is always in demand and tends to be resilient during economic downturns. Consider starting a healthcare-related business, such as a home healthcare service or a medical supply store.
Personal finance and debt management: Financial insecurity is a common issue during a recession,
and many people seek out help with managing their finances. Consider starting a financial consulting
business or offering debt management services.
Education and training: As people look to improve their job prospects, education and training businesses, such as online courses, tutoring, and coaching, tend to do well during a recession.
Financial preparedness is crucial in uncertain times. To ensure financial useful during market downturns, as it allows investors to take advantage of declining values and realize tax savings. The investor can then replace the sold investment with a similar, but not substantially identical, investment to maintain their desired portfolio composition. Tax-loss harvesting should be done in consultation with a tax professional to ensure compliance with tax laws and regulations.
Gold and other rare metals are also well worth considering as investments. They have traditionally been regarded as effective inflation hedges–that’s because, despite changes in the value of the shilling, they consistently maintain their value over time and protect your purchasing power. Kenyans looking to invest in gold now have a simpler option in the form of Exchange Traded Funds (ETFs) available at the Nairobi Securities Exchange (NSE).
This option provides diversified investment, traceability, and protection as the ETFs are fully hedgedunderlying assets. An example is the Barclays NewGold ETF. Each NewGold security represents 1/100th of an ounce of gold, held in a secure depository and backed by physical gold. The ETF tracks the price of the metal as listed on the London Metal Exchange and is sold in minimum lots of 100 shares equivalent to one ounce of gold.
Before investing, it’s advisable to reassess your investment strategy to ensure that it aligns with your current financial situation and goals. Rather than just investing in the stock market blindly, take the time to consider what you hope to achieve through your investments, such as setting up an education plan for
your children.
The writer is the editorial consultant of the accountant Journal.
