Finance at your Fingertips by Moses Ayiku, Jr. MBA OP/ED
Personal financial management has various aspects; income is generated, then we have to decide how to use this income. Budgeting is one way to track our money and make the most out of it. In the budgeting process we should get to the point where we factor in saving. Saving is the lifeline to the future.
Tomorrow will come. As a result, we need to prepare for that. Once we are saving, we need to set up our emergency fund. An emergency fund can be structured to cover our expenses for 3, 6 or 12 months in case the worst happens, and we lose our job with no income coming in. After we have accomplished that, we can now turn to investing our money.
Stocks are a long-term investment vehicle that will give us an opportunity to grow the value of our money with time. Apart from investing our money, we have other goals that we need to target. Should we buy a house or rent? What about getting a new car or buying a used car? We could also lease instead of buying a car. We want to go on vacations occasionally.
To avoid creating a financial hole for ourselves, it is prudent to make adequate financial plans for vacations such that we do not distort our finances. We need to buy food, clothing, gas and pay bills. There are many financial decisions that we have to consider. In all of these, one major reality is that all financial decisions must always be made with due consideration to what is happening around us and more specifically, in the economy.
An economy refers to the institutional arrangements in place that direct all resources in diverse directions. Economics studies how society utilizes its resources to satisfy the various needs and wants of people.
When we are making our financial decisions, the economy must be understood on a basic level at the least. For example, if you want to buy a home or a car, you will want to assess the current state of the economy before making your decision. Timing is everything. Most people would not opt to buy a car or a house at a time when interest rates are rising.
Alternatively, those buying stocks would not want to buy stocks at a time when stock prices are rising through the roof. After all, the stock market is simply that, a market. To make money in the stock market a basic principle would be to buy low and sell high. In other words, one ideally should look for stocks whose prices have fallen and are expected to rise. That way the chance of earning large capital gains exists. This is quite like a businessman that would buy electronics at a low price and then add their margin to make a healthy profit.
Covid has impacted the global economy and for years to come it will continue to do so. When the pandemic started in 2020, many companies had to make tough decisions. Some decided that it was a prudent move to let their staff go. With many businesses operating from home and shut down to the public, some businesses could not survive and had to shut their doors permanently.
As a result of the pandemic, we saw unemployment rise. Those who were unemployed had to go into their savings to survive. Keep in mind, we did not foresee the pandemic so planning for it was out of the question. That is why we always advise people to save for an emergency fund as a top priority. Life brings changes in our circumstances that at times are beyond our control. Emergency funds are meant for those unplanned situations that will impact our income negatively.
With the successful development of vaccines, we knew there was light at the end of the tunnel. People are being vaccinated and this gives us hope that soon we will return to some type of new normal. Businesses are reopening and beginning to hire.
Unfortunately, one major problem the pandemic created for our economies worldwide is that it distorted and destroyed aspects of the global supply chain. A global supply chain is the worldwide system that a business uses to produce products or services. Supply chains are about production and distribution. Good and services are produced worldwide and moved from location to location. When you travel from one state to another, especially by road, you will see many trucks on the road carrying goods meant for stores, the malls and other business entities.
There is a process by which goods are produced and then sent to locations where people are willing to pay for them. Imports and exports are constantly taking place and constitute part of the global supply chain. Covid has altered many supply chains. As a result, we expect that in the coming months we will see some of the adverse impacts of Covid distorting our supply chains.
Currently, many restaurants for example are reopening to the public. However, last year, as these businesses closed and laid of their employees, those workers found other sources of income and or other jobs. A year later their previous jobs are now available, but those workers are elsewhere, and many do not intend to go back to their old jobs. The problem restaurants are facing is that they are having challenges hiring new people! This of course will affect the ability of these restaurants to fully cater to their customers.
In the gas sector, we did not travel much during Covid. With quarantine, we all consumed less gas in 2020. Most people were working from home and didn’t need to travel to work. The drivers who normally transport our gas were also laid off. They also had to find alternative sources of income. A year later, gas transport companies are struggling to hire qualified drivers to distribute gas. Consequently, we have started seeing an increase in gas prices.
During the pandemic, we were all advised not to travel. The travel industry was especially hit by the pandemic. With no one traveling, airlines made large losses. Some airlines pivoted to moving medical supplies and other goods. Hotels were empty as people were not traveling. Some hotels came up with creative ways to attract clients. They created work packages for the public. In other words, some hotels provided daily rates for people to rent their rooms for work purposes. This was a way of providing an option of workspace to those who could not concentrate on work at home.
With increased levels of vaccinations, we expect that more people would begin looking at their travel plans. People are fed up quite naturally, after being cooped up for one year plus because of the pandemic and would want to travel. We can expect that the travel industry will continue to see an uptick in customers as everyone tries to move on with their lives.
With so many of us staying at home and not able to spend as much as we normally do, Americans have saved a lot of money. As the economy reverts to a new normal, expect those who saved money to start spending some of it. This will boost businesses. When businesses get more customers and make more money, they in turn will hire more people and spend more to provide what the public is willing to pay for.
In that sense we could be looking at an economic boom. When one factors in the various stimulus programs that injected trillions of dollars into the economy, we can all have a cautious but optimistic view of how the economy will perform in the future.
In part of the country, many people are trying to buy homes, the problem is that we have a historically low stock of houses on the market for sale. This in turn is causing housing prices to rise in various areas. Why, because with a limited stock of houses, those that want to buy homes are pushing the prices up as they bid for the homes.
The above issues raised entail positive as well as negative impacts. All of us need to regularly monitor what is happening in the economy on a regular basis. As we get information about the economy, it can assist us in our financial planning decisions. Listening to the economic, business, and financial market news on a daily basis is one way to ensure that we are on top of what is happening in the economy. This is something that we all need to be doing if we are to make well informed financial decision.
Please feel free to share with me your questions and experiences on stocks and investments. I will do my best to respond, and, in some cases, I will write on some of these questions.
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