A typical family may experience financial strains due to the prevailing unfavourable economic indices – high inflation, unemployment, exchange rate and other factors. Within Nigeria's dynamic economic setting, the capacity of families to endure these financial uncertainties and navigate through the current economic realities has emerged as a top priority. Hence, the need to embrace strategic financial tactics to overcome these obstacles and safeguard their financial security. This article explores essential strategies that Nigerian families can employ to effectively enhance their financial resilience.
Understanding Financial Resilience
Financial resilience is the capacity to maintain one's standard of living through mitigating the impact of financial strains on the income and expenses. In Nigeria for example, some of the recent government policies and the ongoing reforms are causing financial strains on the purchasing power of families. Financial strains can also arise from personal circumstance and habits such as chronic health issues, expensive lifestyle and excessive black tax.
To achieve financial resilience, there is a need to deploy appropriate financial and risk management strategies in the affairs of the family, not only for efficient management of family income, but to avoid wealth depletion.
Financial education and literacy are essential components of financial resilience. Many Nigerian families and family-owned businesses face difficulties due to poor comprehension of fundamental financial principles like budgeting, personal finance, investing, and debt management. Thus, having a good understanding of financial concepts is crucial for making well-informed financial decisions and establishing a secure financial future. Further, it is worthwhile for family leaders to impart valuable financial knowledge to their children, fostering a cycle of informed decision-making and adaptation to evolving financial landscapes.
Strategies for Building Financial Resilience
- Creating Emergency Funds and Contingency Plans The importance of having emergency savings and contingency plans in place cannot be overemphasized, especially when considering life's unpredictable nature. An emergency fund serves as a financial cushion, offering reassurance and stability in times of unexpected occurrences such as medical crisis, job loss, or natural disasters. It is recommended that emergency funds cover three to six months of living expenses, and held in a readily accessible form such as a separate account or money market fund. It is crucial that these funds are easily reachable, however cautions should be in place to avoid the temptation of utilizing the funds for ulterior needs. It is also advised that regular contributions are made to the fund in order to ensure the fund is continuously replenished. In addition to having emergency funds, the presence of contingency plans is crucial. Families should openly discuss potential risks, such as health issues and job instability, and establish corresponding contingency plans. It is wise to consider investing in health, life, and property insurance to alleviate financial risks. These plans delineate necessary actions in the event of unforeseen circumstances, including exploring alternative income sources, implementing temporary cost-saving measures, or obtaining insurance coverage for specific risks. Proactive preparation can significantly mitigate the financial repercussions of unexpected events.
- Diversifying Investments for Risk Management Diversifying investments is pivotal for strengthening financial resilience. While investments are essential for accumulating wealth, diversification stands out as a key principle in mitigating risks. Concentrating all assets in a single bucket can expose families to undue risks. Spreading investments can also enable an increased returns when considering overall portfolio performance. The diversification model can be in relation to asset classes, geographic regions, industry etc. In diversifying per asset class, Nigerian families can consider a range of options such as stocks, bonds, real estate, mutual funds, and other asset categories, each with its unique risk-return profile. A well-diversified portfolio can help soften the impact of market fluctuations and economic downturns. Most importantly, seeking guidance from financial experts to develop a diversified portfolio that aligns with long-term goals is crucial for successful investments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.