Personal Finance

Have you readjusted your personal finances plans during the pandemic?

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Summary

  • For the very fortunate, the pandemic has meant little to no adjustment.
  • However, the majority of Kenyans have had a tough ride.
  • A significant percentage of salaried employees have been sitting without pay while others have had to take a significant pay cut with the hope of still holding their jobs.

For the very fortunate, the pandemic has meant little to no adjustment. However, the majority of Kenyans have had a tough ride. A significant percentage of salaried employees have been sitting without pay while others have had to take a significant pay cut with the hope of still holding their jobs.

Businesses’, large and small, incomes have shrunk. The dynamics of income, spending, saving and investing have shifted.

A Pew Research Center survey done in the US earlier this year, found that roughly half of non-retired adults say the economic consequences of Covid-19 will make it harder for them to achieve their financial goals.

These sentiments could apply to citizens of almost every economy. In partnership with Strathmore University, Enwealth is conducting a survey looking at the effect of Covid-19 on financial and general wellbeing of retirees in Kenya. We will release these findings soon.

As we progress from a phase of fear into gradual re-establishment and hope for recovery, the question about personal finances during and after the pandemic is key. Where do we go from here?

Analyze current position

Lost is a good place to start. Take a moment to sit and analyze your current financial position. Check your accounts, how much you have. Look at your current budget (you should have one) and see if it aligns with your current income position. Check on your savings. Calculate how much debt has piled up, with the interest due.

Establish how much you have saved for retirement and if your income is uncertain, determine how you will keep up with the contributions.

Cut spending

After you have found your standpoint, you might need to make changes to your spending. You may find it hard to downgrade your current lifestyle but some of the measures in place could be what you are looking for. If you are working from home, for example, you are saving on fuel or fare. With the restaurants closed, you can cook more meals and save some.

Think retirement

The current storm in the financial markets, stock market, pension schemes, real estate markets may tempt you to pull out from your current pension scheme. However, keep in mind that If you are still employed, you will be missing out on the employer match-up contributions. This significant pause in contributions could make you fall short of the recommended income replacement ratio.

A survey conducted by Enwealth showed that many Kenyans have an income replacement ratio that is far below the recommended level of 75 percent upon retirement. In addition, if you pull out, you would no longer be eligible for the tax reliefs which could set you miles ahead in the long run.

Set emergency fund

Saving something for a rainy day is one thing that the pandemic has taught us the hard way. If you don’t have one, set up an emergency fund. Put some money into it regularly. Even better, set a goal and work towards it.

Targeting to build an emergency fund that is equivalent to six times your monthly net earnings would be ideal. With the heightened levels of uncertainty, it will surely come in handy. Make sure all your insurance payments are up to date to avoid draining the emergency fund unnecessarily.

Final word

Staying accountable and maintaining disciplined financial habits is paramount to pull through this current and future storms. It is important to maintain a positive outlook and have a long-term approach when readjusting your finances. It would be great to be financially stable when telling tales of the pandemic in the decades to come.