Finances And Investments: How To “Plan” For The Things We Cannot Plan For To Avoid Being Blindsided

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Unprecedented. I don’t think a longer word has been used more times than this word this year – and it is not unmerited either: Covid-19 is unprecedented, unfathomable perhaps.
Even people like me, who prefer to live while constantly simulating worst-case scenarios in mind, did not see it coming – a black swan event that would not only be global but one that would persist with no certain solutions and no definite timelines. A reality that would not only claim the lives of hundreds of thousands of people but also have millions infected and leave billions of livelihoods devastated in its wake.

As a personal finance enthusiast, I have always insisted on the primacy of an emergency fund. I think of a 6 months emergency fund as a good cushion, but in no way adequate, for most of life’s short-term shocks. Hence my advice has often been to aim for 12 months. Now with Covid-19, entire companies have folded up and others let go of employees they can no longer afford to keep. In many households, the breadwinner, and in some cases both partners have lost their jobs and have no hope of finding new employment quickly enough in the current environment. How To Manage Finances When One Partner Loses Their Job

With a family to feed, bills to meet and school fees to pay, it is easy to burn through even a 12-month emergency fund, long before that period is over. Finances: The Importance Of An Emergency Fund

How do we financially deal with occurrences that even all the wise men in science, economics or religion cannot predict? How can we be prepared for the unimaginable? How do we “plan” for the things we cannot plan for? Not just the unpredictable events that affect everybody like Covid-19, but especially the unpredictable life storms that hit our personal boats from the blues on an otherwise tranquil day.

Capsized or Swamped: Stay with the Boat!
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First, setting the financial angle aside for a minute, I think it helps a great deal to make it a habit to mentally walk through devastating events even just fleetingly. Mental health experts might disagree. But here, I am not talking about biting your nails, ruminating for long periods of time, on remotely possible events that will likely never happen – that could be depression. I am talking about the intentional thought process of being at home with the idea that very bad things do happen to people and they could happen to you. Whether that be a nasty divorce with a hitherto devoted spouse, a disability, a war, hyperinflation, a criminal indictment or a bank collapsing with your money in it.

In the unfortunate case that one of such dire events does indeed manifest, it would help if you had consciously processed the possibility that it could happen to you. Think of it as mentally dealing with a problem, partially at least, before it happens. This, I suppose, frees up a significant amount of mental space that allows you a good chance at thinking logically about the problem when it does occur.

The bad news is you cannot possibly think of every horrible thing that might happen to you. The good news is that you do not have to be too specific. Just be willing to accept the possibility that, terrible stuff could happen that would outlast your financial dry powder, despite a solid emergency fund, a healthy investment portfolio or a generously funded insurance policy.

Reverting now to a more financial perspective, the most important thing is to always aim for a decent level of savings. Obviously, as is the case now, those savings could get obliterated if the crisis extends. But no matter how unpredictable an event is, any extra month worth of savings gives you staying power. A nation having a formidable military force does not mean it will never suffer attacks, but it will have staying power in a conflict. You do not want to be going hungry the day after you lose your paycheck no matter how unpredictable the circumstances were.

This point does not ignore the fact that a vast majority of Kenyans are in low-income employment. Meeting ordinary expenses is an uphill climb for most of us, and the idea of sparing any change sounds unrealistic. But every shilling in savings counts. It is not the notional amount of savings that matters, it is the proportionate income saved that does. After all, our living standards are largely dictated by our income. For example, a high-income earner with a million shillings saved could still be in a worse position than a lower income earner with two hundred thousand shillings saved because their living standards are vastly different.

If you have been earning for a while and have not a penny saved despite enjoying the usual living comforts of working life, blaming unpredictable events like Covid-19 for the inability to meet ordinary obligations a month after losing an income stream, could be considered disingenuous.

Flexibility is another significant character to have whilst in the eye of a personal financial storm. This ties closely with the point about mentally rehearsing catastrophic events from time to time.

The two primal responses to grim danger are fight or flight. But I like to add a third one – freeze. The reality is, there are times when faced by serious challenges, we tend to freeze into inaction, either out of disbelief or helplessness, but I think more of the latter. We lack the flexibility to quickly make decisions that would immediately place us in a better position, for example, moving to cheaper housing, selling a second car, cancelling a wedding, yanking the kids from an expensive school. This should not be mistaken for “giving up”, and ideally should be done when you still have some financial reserves to make them last longer, not at the tail end when you are at the end of your wits and don’t have a choice anyway.

Finances: Money Saving Tips to Survive A Loss Or Reduction of Income

Finally, pay close attention to your mental assets and how they behave as you deal with the storm. Sadly, some people do get sucked into the abyss of hopelessness and never quite make it back in one piece. Whether it is being stuck in a foreign country for months due to flight restrictions, or losing a business, or suffering a humiliating job loss that forces you into poverty, it is important that we maintain some perspective. This has to do with more than just economics. After all, making it back economically will largely depend on your self-esteem and your mental resilience during a life-changing event. Sinking into depression or teetering on the edge of suicide is not too far off the list of possibilities during a dogged personal crisis. We want to be alert enough to notice any adverse changes in our mental wellness that emanate from the underlying circumstances, take steps to remedy them and/or seek help if necessary. Lifestyle & Mental Health: 6 Ways Of Dealing With Pandemic Fatigue

It may be time to sit down and take a long look at what you own, your obligations and where you want to be in the future. Maybe you need to start by looking at your Personal Finances: How To Get yourself Organized. If you are going through a tough time financially here are a few tips that might help you – 11 Life Hacks For People Going Through Tough Financial Situations

Also, check out COVID 19 Has Opened Up A Financial Pandora’s Box – This Crisis Will Make People Rethink Their Investments. Check out this article on debt – How You Deal With Debt Can Make You Or Break You! What Are Your Debt Habits?

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@TheSoww tweets about money and markets, with a particular interest in personal finance.