Good Morning 😃
How are you doing?
Compliments of the season.
2022 was a year like no other in recent history. Although many countries managed to win the battle against COVID-19 (with the exception of China) and reopened their economies, the war was still on. This was true for economies as much as it was for individuals whose wallets and nest eggs were significantly squeezed.
No doubt, the effects of the COVID-19 pandemic continued to reverberate. What most people did not anticipate was the catastrophic Russia-Ukraine war. Both contributed to the most suffering countries have faced since the global financial crisis in 2008/2009. While rising food and energy prices (due to a recovery in demand as economies reopened) was already causing damage, the supply problems brought about by the Russia-Ukraine war only worsened it. In March 2022, a month after Russia invaded Ukraine, energy prices rose by 25.1%—the highest monthly increase in thirty-one years. Similarly, food prices rose by 11.3%, which was the highest monthly increase since June 1988.
All these contributed to the worst global inflation in decades. Too little Inflation was the problem for advanced economies like the US and Europe until 2022 when inflation rose to 9%, higher than their 2% benchmarks. For developing economies like Nigeria, already worrisome inflation reached new highs, from 15.6% in December 2021 to 21.5% in November 2022. High inflation meant that incomes could buy less goods and services, and living standards dropped.
In a bid to fight the low tolerance for inflation, the central banks of countries raised interest rates. This had the greatest impact on personal finances since 2008/2009. Many economies slowed down, prompting fears about a recession which also led to job losses. Higher interest rates also led to a reduction in personal wealth as assets people invested in—bonds, real estate, stocks and cryptocurrencies—lost a lot of value. Locally, although the Nigerian stock market gained 19.98% in 2022, the naira depreciated against the dollar by 24%.
With these issues in mind, it is clear that individuals will go into 2023 battered and bruised. The outlook for 2023 does not inspire confidence that things are going to be much better, especially locally. The International Monetary Fund (IMF), an institution that monitors global economies, expects many economies to suffer a recession and sustained slow down in 2023, while Inflation is expected to moderate but still remain a problem in many parts of the world. In Nigeria, the elections are going to be pivotal to how the year will turn out. Regardless, the problem of slow growth, high inflation and high unemployment will persist. These problems could be worsened by the phasing out of petrol subsidies and a sustained depreciation of the currency unless oil exports recover strongly.
So, what can you do?
- Focus on the things within your control
You can not change the inflation rate. You can not stop the Naira depreciation. They are out of your control, so you will do well to rather focus on what you can impact.
- Save for emergencies
Many people break into their investment because of emergencies. They might end up selling assets at unfavourable price points.
- Mitigate emergencies
We did a quick survey asking people what their emergencies were and we realised they were primarily health emergencies, losing jobs and having an automobile accident. You can mitigate health emergencies by getting a health insurance plan, so you do not spend out of pocket. We understand how painful losing jobs can be; so, we recommend skilling up aggressively and being visible on platforms such as LinkedIn and others. For automobile accidents, we recommend getting a comprehensive insurance plan (not a third party plan), so it covers everything.
- Avoid debts
There are two types of debts: good debt and bad debt. You need to let go of bad debt on consumables (debt that has no future value) and gravitate towards good debt. A good debt bears fruit in the future.
- Be less aggressive with non-conventional and high-risk investments
Less than 5% of your portfolio should be embedded in high-risk assets. The argument here is that, if the investment goes to zero, your portfolio is still standing firm.
- Have a vision board and stay positive
Your money and your mind are critical conversations you should constantly have. Your mindset about money has been formed since age 7. So, you need to unlearn things that do not serve you and embrace the things that give you joy. Do you have a fund for enjoyment? Are you writing out your big dreams that can give birth to more opportunities? What steps are you taking to bring it to fruition?
While there is a lot of bad news, going into 2023 with a clear understanding of what to expect can enable you to achieve better outcomes individually. I wish you a prosperous and fulfilling 2023. Our theme for MoneyAfrica is Joy and More Money.
With Love,
Oluwatosin Olaseinde
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MoneyAfrica premium plan
Are you a mid to high-income earner? Do you find communities a bit too busy? You should sign up for our premium plan.
You can learn more about that here.
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We often get questions regarding how to plan your finances to align with your relocation plans, especially for students seeking to further their studies. As always, we have heard you, and we have put together an e-book to help you navigate this. Follow this link, to get your FREE copy of the e-book: The Japa Encyclopedia.
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