Nigeria’s economy is grappling with severe challenges, squeezing citizens’ finances. Government policies like fuel subsidy removal and naira floating, intended to combat corruption and stabilise the economy, unfortunately, are causing unprecedented hardship for ordinary Nigerians.
These well-intentioned policies, aimed at revitalising the economy, have unintended consequences on average citizens’ social and economic lives. In particular, the poor face increasing financial difficulties, becoming further impoverished and vulnerable.
The situation creates a complex dilemma: tackling long-term economic issues at the expense of immediate pain for the most vulnerable members of society. Finding a balance between reform and social welfare will be crucial to navigating this precarious situation.
It is highly imperative, therefore, that an individual needs to have a proper understanding of his/her financial situation and adequately plan in the use of financial resources, i.e., disposable incomes and other accruable income, to meet their daily needs and effectively plan for their future.
Unfortunately, and undoubtedly, the financial assets of most citizens are constantly eroding due to exogenous factors, particularly a rise in the inflation rate, thus reducing the disposable income of an average worker and the financial assets of the citizens that depend on other income streams from their hard-earned financial assets. However, one should strategically use these financial resources and plan for rainy days.
In this article, I will show you 8 ways to manage your personal finances in Nigeria’s turbulent economy.
Challenges Associated with Personal Finance Management in Nigeria
Managing Personal Finance in Nigeria’s Turbulent Economy
Most citizens are grappling with their financial well-being, as many families have suffered severe financial stress. Financial well-being is a state of having financial stability. Financial well-being goes beyond having money to meet essential financial obligations and paying your bills.
Financial well-being also includes meeting future and unanticipated financial responsibilities and making financial choices that align with your goals, values, and expectations without experiencing constraints in using financial resources.
Numerous factors militate against an individual towards the attainment of financial well-being, which can be succinctly summarised as follows:
- Extravagance Spending Habits: Lacking in the prioritisation of expenditures, spontaneous purchases of items on the shelves due to uncontrollable impulses and the urge to buy and overspend hinder achieving a state of financial well-being.
- Poor Financial Literacy: Informed and adequate knowledge of the use of financial resources is a virtue that is inherently critical in financial stability. Lack of such expertise inadvertently results in a financial mess, as individuals cannot distinguish wants from needs.
- Poor Savings Habits: The lack of savings culture would naturally result in financial instability, regardless of what is earned as disposable income. You can still earn good salaries or incomes, yet financial freedom could still be elusive to you due to the inability to set aside part of your income as savings.
- Owanbe and Aso Ebi Syndromes: Some naturally love various ceremonies and parties. Where people obtain loans and advances for parties or ceremonies, whether such is essential or of less importance, is rather bizarre. In the same vein, most people would invest in Aso Ebi, which does not add financial or economic value, which is of serious concern, as this is done merely to please the celebrants. These financial resources have alternative uses that would have promoted their financial well-being.
- Growing Debts Obligations: Debt tends to increase your depression and anxiety. It is widely read in most of the country’s newspapers, where some have taken their own lives due to shame and reproach associated with raising debt profile. In addition, debt hinders a person from making sound financial decisions amid alternative options, thus eluding the person from the opportunity to explore financial privileges, thereby increasing the state of financial instability.
- Gambling: Gambling is gradually becoming a public health issue in most countries, including Nigeria because it is an indication of self-reported financial stress. Most gamblers run into debt and become more frustrated when they are not winning. Gambling with their incomes and savings, thus eroding their financial well-being, further subjects these people to severe financial pressures.
The Consequences of Poor Financial Well-being
Without mincing words, poor financial well-being has dire consequences on the life of an average person. These can be exhibited in any of the following ways:
- Mental Health Issues: Many people have developed anxiety and depression to the extent of developing suicidal ideation, and few have taken their lives untimely, particularly in the areas of debt. This is more prevalent among people caught in the web of online loan facilities, popularly known as “gbomule-lantern”, as most of these online loan providers are not within the radial of the regulatory authorities.
- Poor living standards: A significant impact of poor personal finance management is the inherent perpetual poor living conditions, as these people end up living from hand to mouth; this is further exacerbated when the individual has a huge debt burden.
- Reduces Assess to Health and Social Needs: Data and research have shown that out-of-pocket health Expenditures in Nigeria account for 71.03%, one of the highest in Africa. This has an additional burden on the citizens, and where an individual is experiencing financial instability, such would find it extremely difficult to meet adequate healthcare services. In addition, it would also impact the ability to meet other social needs, such as access to quality education for their children and dependants.
- Strain Relationships: The shame and reproach associated with a lack of personal finance management often lead to a breakdown in relationships. Financial constraints are one of the factors that often lead to marriage breakdown, conflict among families, and desertion from friends and loved ones, which may lead to isolation due to shame and embarrassment, which can also lead to low esteem of the individual.
- Limiting Career Growth and Development: Financial instability prevents individuals from focusing on jobs due to depression and anxiety, thus leading to low productivity at work, which may negatively impact career growth and development.
- Increases Trust Violators in Organizations: Occupational fraud schemes, such as asset misappropriation, skimming or cash larceny, increase at the workplace, where an employee intentionally steals from his employer. Employees who lack integrity may steal from their employers to meet their financial obligation, relying on the rationalisation that they are entitled to it or merely borrowing from their employers to justify such criminal behaviours. Similarly, a trusted individual can become a trust violator in the face of financial pressures, which could be attributed to the absence of proper personal finance planning strategies.
The Importance of Personal Finance Management
Personal Finance Management helps in budgeting and planning your personal finances to attain financial well-being. An individual should be able to ascertain what is spent on rent, transportation, feeding, utility subscriptions, insurance, etc., and effectively manage income to ensure that budgetary provisions are not exceeded.
For instance, where it is necessary to cut back expenses on items or change service providers that offer cheaper, reliable, and quality services, such should be explored, thus bringing down expenses on these items and bringing about an increment in part of the income that can be kept back either for saving or investment.
8 Ways To Manage Personal Finance
1. Budgeting Plan
A budget helps you to plan your estimated expenditures from your income streams. With budgeting, you can list items of priority against impulse-driven expenditures.
You can plan the amount of your disposal income for transactional purposes from those you intend to set aside for savings and investments. You can also review your budget to see where changes occur in your income stream.
2. Saving for the Rainy Day
Savings serve as risk mitigation against a rainy day, and this must be done consciously, even very painstakingly, as it involves lots of financial discipline and a change of lifestyle to reflect the changing nature of the economy.
You should spend your money on things that are essential and reduce the number of parties that you attend as most of these parties (owanbe) drain to your financial assets. The purchase of “Aso- Ebi” should be cut off completely.
Where it is imminent that you should appear at such a party, you should avoid the temptation of spraying money at a party. Apart from the fact that such practices deface the national currency and are an extravagance, it is also illegal to spray naira at a party according to Section 21 (3) of the CBN Act, 2007.
This extravagant lifestyle should be curtailed, and the money should be put to reasonable use.
3. Investing in Relatively Liquid Assets and Long-Term Finance
Similarly, you can invest in relatively liquid and low-risk assets that can be easily converted into cash in an emergency situation . Commodity assets, such as gold, diamond, silver, etc., can be invested in reputable organisations as they have relative price stability in the commodities market and are less volatile in the global market.
Other forms of investment include treasury bills and treasury certificates. These are risk-free government securities as the Apex Bank backs them on the land. Thus, it brings about a stable income, and your initial capital investment is guaranteed at the end of the tenure of your investment in these securities.
Furthermore, you can also invest in long-term finance, where you purchase shares of reputable organisations in the secondary market, availing you of the opportunity to earn dividends, and you can also sell such shares, particularly where the shares have appreciated.
This improves your liquidity position to meet other emergency needs. You may also invest in other lucrative stocks in the market.
4. Debt Settlement
You must make concerted efforts to pay off your debt to have financial well-being; as the debt age increases, the debt’s interest element keeps increasing, further eroding your financial resources to meet other needs.
Where you have multiple debts, you should work towards consolidating these debts for effective management, which also helps reduce the interest on debts.
5. Seek for Professional Expert Advice
Financial advisors can help you manage your financial resources effectively and develop personal finance strategies to meet your specific needs.
They can also help provide investment advice, guide your investment decision, and explore the various legislations that would help your financial planning.
6. Financial Literacy
It would be best if you educated yourself about financial literacy. Read books that will enhance your financial well-being, and where possible; you can enrol in short and less costly courses on financial literacy, which will help in budgeting, planning, and using financial resources.
7. Create Emergency Fund
One of the motives of holding money is for precautionary purposes. You must set aside some funds to meet unforeseen circumstances that may arise, such as car repair, medical-related issues, etc.
8. Health Insurance
Health insurance promotes financial freedom, as it serves as effective planning in meeting unexpected health issues. It also helps reduce medical costs and mitigate medical contingencies that may adversely affect your savings.
In addition, it promotes the state of your health since most health insurance policies cover certain aspects of health care delivery services, which you would have paid as out-of-pocket expenditures.
The absence of proper personal finance planning is a precursor to poor financial well-being, which has several consequences on an individual, some of which are anxiety, depression, suicidal ideation, mental health issues, etc.
It is highly imperative for an individual to carefully set a financial goal, develop an effective financial plan, put in place a personal budget, work toward the implementation of the financial plan, review such implementation and revise the plan where changes arise and continue to work towards the attainment of financial freedom and seek for professional help as these serve as a trajectory to financial wellbeing, emancipation, and stability.