Current trends in personal finance

BEING members of a community, our personal finances and financial well-being are affected by the prevailing economy, government policies, technology and other factors. Here are some of the things trending.

Taxation and Tariffs – The current government is cash strapped and unable to generate the funds to achieve its election promises. Different new taxes and tariffs are being introduced and existing ones are being increased. Value Added Tax (VAT) is billed to go up by 50% to 7.5%, this tax is paid by the end-user on all services and processed goods e.g. there is no VAT on yam, but VAT is payable on yam flour.

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This increase would automatically affect the amount of money available for us to invest after consumption and may ultimately slow the achievement of our financial goals. VAT is targeted at the individuals, but companies are not left out. A new tax – Police Development Tax, has been introduced for companies to pay from their net profits. This would affect the amount of money these companies can pay out to shareholders as dividends. Therefore, investors would be getting lower returns on their investments. Electricity tariffs have recently been increased in line with MYTO, the multi-year tariff order agreement between the Federal Government and the investors who bought the unbundled PHCN. Increases in tariffs also results in lower investible funds.

Access to credit – In order to achieve CBN’s financial inclusion targets, access to credit is becoming easier. This is both positive and negative. For those with viable financial needs and the accompanying ability to manage their debts and assure repayments as and when due, the trend is God-sent. Reasonably priced loans are available to artisans and small business holders – this category of businesspeople, who by the way, employ over 70% of our labor force, were hitherto excluded from credit or if they obtained credits, it was at ridiculously high-interest rates.

Personal loans are also available for consumption (non-productive) purposes. Consumer loans are not advised, instead, investors should live within their means. Loans could be taken for emergencies e.g. surgical procedures or roof repairs after a rainstorm. But that is the not the best option even in such adverse circumstances; a wise investor would have proactively planned for unforeseen circumstances and invested in risks management products like health insurance or homeowners’ insurance. After borrowing comes repayment.

If the loans are used for business, then the income from the business would easily repay the loan. However, with consumer loans, the instalments reduce the amount of money we have to spend on lifestyle and investment. Most of us insist on maintaining our lifestyles, so the number one victim of consumer loans is an investment because we now have less investible funds. The question is – Is the 55-inch plasma TV worth sacrificing our financial future for?

It is better to save towards buying the TV, but these days, delayed gratification has almost become a taboo. If you save towards buying consumer goods, you eliminate the interest payable if you had borrowed. Interest on some of these loans are as high as 60% per annum. Surely that does not demonstrate financial literacy.

Personal Finance and Mobile Banking Apps – These are available from our mobile phone stores free or for a small fee. Personal finance management apps help us to manage our finances through budgeting, event reminders, bank accounts reconciliation, investment advice and much more. Mobile banking apps have moved our bank branches to the palms of our hands. From there we can open accounts, apply for small loans, transfer funds, pay bills, establish standing orders, order cheque books, stop cheques and more. These apps regularly add additional capabilities including safety features, so let’s ensure we update them regularly.

Blockchain Technology and Cryptocurrency – Blockchain is the technology that cryptocurrencies use, so cryptocurrency is not blockchain as some people think. Blockchain is one of the safest ways of managing and transmitting big data and therefore vital to financial transactions.

Several non-financial organizations in Nigeria are already using this technology including some government agencies. Cryptocurrencies have keyed into the technology to facilitate efficient data management. Though Bitcoin is the most popular, there over 400 cryptocurrencies of various categories currently in issue. The central banks of countries like Sweden, Japan, Dubai and Russia have even issued cryptocurrencies, so it is only a matter of time before cryptos enter mainstream transactions in Nigeria.

Whether the trends appear negative or positive, let’s learn how to use them to our advantage. Happy investing.