By Michael Jjingo
As inflation hikes, price rises are particularly hitting at lowest income households and SMEs with very already tight budgets. Well, this is not only evident in the drop in the number of cars on the road, but also the lesser households that can afford the usual two decent meals in the day. Whether you have a family to feed, or single, hard and fast decisions have to be taken.
Rising prices on everything from fuel to some food items, to clothing have many families wondering what to do during times like these. These are financially challenging times with so many changes happening to the households, whose actual income is not getting better, and for some reducing, especially the real value.
As we see the increase in the interest-rates, this is also a sign of the subsequent reduction in spending, as borrowers spend more on servicing the credit. Certainly, this will be beneficial to the economy, as it will have a major impact on the households, for frugal financial decisions loom for families everywhere.
Is this the time to get rid of that family car, or even scale down from two to one, if you cannot afford the fuel? It depends. If the car is a near luxury for you, park or sell it. But, when the car parks for a longer period, it then develops some mechanical issues, the value drops, the children and rats could see an opportunity to vandalize, and some parts could wear out like the Tyres and the body.
As food costs rise, and fuel prices seemingly climb higher every other week, many are wondering if there are smart financial moves to make now. Better to reduce the unnecessary travels, and use more of the public means like taxis, buses, bodaboda, when you must.
Certainly, the locally produced food prices have not hiked as much as those that have an import leg, like wheat, cornflakes, cereals etc. As I agree with the President regarding the substitution of bread for cassava, indeed, the price of wheat may not stabilize in the future, since it is impacted by an ongoing war.
For families simply trying to keep up with monthly utility and other bills, there could be a need to clearly define mandatory or must pay for, against the variable expenses. Well, it may be hard, but possible for a dating couple to reduce the outings, the gifts and pleasantries. The costly lunch will lose the taste if the landlord has not been paid.
Cutting back on the five course dining table menu, eating out at restaurants and club memberships are examples of variable expenses. Making smart adjustments, like optimizing on water usage to lower a bill too, postponing the wardrobe changes, suspending the new car purchase can make a difference.
Many times, it is about losing less so that when the economy recovers, you are in a position to gain more, as you recover. All will agree with me that this condition is not permanent; there will certainly be light at the end of the tunnel. Several safeguards have to be deployed as you fasten your seat belt.
The younger you are, the more you can afford to take more risks in volatile businesses. As one UPDF Brig. General advised, “When you get older, the investment portfolio has to be more conservative with guaranteed and ready fixed income.” This time makes it rather harder to construct a commercial building, as the costs of the building materials in your Bills of quantities will keep on scaling.
But again, purchases for already done fixed assets may turn your tide. And true, switching some of your investment positions to fixed income isn’t going to give you a lot of return but it’s going to give you a little balance and make your portfolio a little safer.
Depending on how diversified your portfolio and investments are, the answer could be to stay put. This could be the case if the portfolio speaks to undisrupted businesses and investments. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing.
For sure, Consumer spending in real terms is already slowing down, and household income cannot keep up with inflation, and thereby forced to economize. With the continuation of the Russia Ukraine war, all signs point to expectations of high inflation to come.
For business owners, the decision to scale up prices doubles as a business, and as a moral question, as you see your loyal customers struggle to make ends meet. Better to be more frugal in the running of the business, by cutting down some unnecessary fat to save the loyal customers of that price rise.
The writer is the General Manager Commercial Banking at Centenary Bank.
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