Monday, December 08, 2008

The economy & married life

Apart from the obvious and expected adverse economic impacts, a recession or even a credit crunch has adverse impacts on families. For example, it’s generally acknowledged that the downtimes in our Kenyan economy especially in the 1990a really messed up families with either spouses have to emigrate to greener pastures. Likewise in the UK, marital counsellors are saying they've seen numbers go up by 50% since last year. Although there might be other reasons for this, the most likely reason will be the credit crunch followed by the current recession. Job losses and reduced financial flexibility do put pressure on all of us, but for families this can be augmented by the fact that one also has children to take into account. They rarely understand downtimes! Saw what are some good practices to reduce such stress:

  • Financial lifeline: Where possible look to save/invest 6 months worth of salary when employed. This should be over and above regular savings and investments. This applies to anybody that is dependant on employment for 95% of their income so not just families. Having such financial back up will cushion the shock of suddenly losing your job or even having your breadwinner pass away.
  • Practice financial transparency: Many of us know of families where the passing away of the breadwinner has lead to financial hardship because the said breadwinner kept financial dealings secret from his/her spouse. What about cases where one of the spouses is suddenly discovered to have amassed debts running into millions or thousand of pounds? It also lightens the decision-making when situations are critical i.e. job loss or death if whole financial situation is known.
  • Insure big ticket items: Big ticket items is an Americanism that means items that take up a high proportion of your monthly/annual income. For us Kenyans, medical expenses can turn out to be a huge expense. Insure your family and your parents if you can afford. In the UK/US, building stuff can turn out to be expensive e.g. heating systems, building repairs. One should also vet insurers wisely to avoid lengthy claim period.
  • Make a will: It may never happen, but we all know of cases where somebody has passed away very unexpectedly and leaves a financial mess because coupled with financial (or other) secrets, he/she didn't assign beneficiaries to her/his financial estate. It does not have to be detailed, just name the beneficiaries.
  • Long-term financial plan: Having some goals for the next 10/20/30 years e.g. type of house, education, leisure activities, work/life balance will help you as family figure out how much and when to invest/save. It reduces the impact of the unexpected on your financial life.
  • Loans: For consumption are to be avoided. I'd go as far saying that loans for anything apart from your home are to be avoided. Unless the margin is guaranteed.
  • Save aggressively in good times: Bears repeating, but if you are aiming for (1), you will have to.
  • Financial knowledge: You don't have to know eps, p/e, but it would help if you knew the implications of a cut in interest/mortgage rates on your financial situation.
  • Record your expenses: And Income: If you've ever gone to a decent/good bank for any form of credit, it'll ask you to provide income and expense summary. The reason is simple. Knowledge is power.
  • Live within your means: Goes without saying it, but if you are used to dressing in Burberry, Calvin Klein funded by your 15 credit cards when times are good, things will be very thick for you when the economy heads downhill. Saving well means you are living within your means by default.
  • Additional sources of income: if you are employed, look for consultancy work or start your own business. If you are in business, diversify.


Ssembonge said...

Good post. I have written one on credit cards but I'm yet to post it.

If you have enough savings and have good control over our cashflow, then always buy everything on credit even if it means paying off the balance at the end of the month. I always buy big ticket items on 0% credit. That way I get to have my cake (savings) and eat it.

Rafiki said...

Wow, counselling up by 50%! Is it possible to buy shares in a counselling firm? Or maybe in drug companies producing anti-depression medicines?

MainaT said...

Ssem-Post that credit card post-it may save somebody because things are about to get very tight in that sector.
Rafiki-if youa re broke, you can't afford counselling or anti-depressants.