19/07/2010 00:00:00
by Tafirenyika L. Makunike
THE challenges that bedeviled our nation and escalated from about year 2000 caused millions of Zimbabweans to scatter across the globe with the key driver being the hope of finding sustainable livelihood means to determine their future and support the extended families back home.
Escaping a highly inflationary socio-economic environment back home, a good number of Zimbabweans suddenly found themselves in well developed economies flush with a plethora of credit offerings which was not the case back home.
While many had excellent academic credentials, the education system had not fully equipped them with sufficient financial capability to manage their resources and make sound financial decisions.
The unrestrained credit binge that followed has left many in a highly stressful aftermath which requires hand-holding to maneuver out of.
To borrow from Warren Buffett’s classic quote, "It's only when the tide goes out that you learn who's been swimming naked."
The global financial crisis left many in our diaspora communities exposed.
Many Zimbabweans entered their adopted homes during the exciting bull-run periods where every asset class was appreciating in value.
They joined the jamboree and procured assets which by and large are now worth less than what they bought them for.
Others milked these assets to finance economic activity back in Zimbabwe but were also left clutching negative equity in their adopted countries.
As people try to rebuild their lives from the ashes of the global financial crisis it is important to take into account foundational principles of money management that will assist them in making the right choices.
While literacy is simply a way of communicating across space and time, financial Literacy is the ability to make informed judgments and effective decisions regarding the use and management of money.
This requires all of us to go back to basics and it starts with understanding money so that we can develop a healthy relationship with it.
Alex Dumas advises us "not value money for any more nor any less than it is worth; it is a good servant but a bad master."
Understanding money means understanding how much money you have and where it goes.
It means being in a position to make the most of what you’ve got and it means protecting what is yours. It confers us with the ability to evaluate and manage our finances in order to make prudent decisions toward reaching life’s goals.
The various economic systems that we are a part of are based on money and we have been driven in some cases across frontiers by money matters, so why not learn how to use and manage it effectively?
For the Zimbabwean diaspora communities there is the added pressure that they have to manage their resources across time and geographic space.
The precursor that led a good number to far off lands was to get money to be able at least to acquire a home.
Some pumped the fruit of their toil back home through family and friends to build houses only to have so much grief on discovering that their hard earned money had been embezzled by those closest to them.
Good financial literacy may assist in managing money across frontiers, use credit effectively, build wealth, and make sound financial decisions.
Lake of understanding of the difference between needs and wants is the major pitfall for many people.
Needs are what we basically require to keep it together and they are pretty few, covering just food, shelter, clothing, and companionship.
For Zimbabweans food can just be sadza/isitshwala with some common veggies but for people moving up the food chain choice grade steak every lunch at exclusive restaurant in some metropolis may start to feel like a need.
Shelter can mean a basic house with running water and electricity or for other people it may be an exclusive beach front property for which a monster mortgage payment is required.
This blurring of the distinction between needs and wants has left many stuck in debt because of the choices they made.
Many of us are afflicted by what US business professor Jack Guttentag termed ‘Payment Myopia’ – which is to consider the immediate affordability rather than the final amount to settle the full bill.
So for a Blackberry 8310 Curve retailing for an upfront price of, say $600, the monthly repayment could be say, $60.
But when we multiply it over the whole life of the loan which is 36 months - lo and behold, the price of instant gratification works out to nearly four times the price that could have been paid if we had the patience to save for it for a few months.
They say a key symptom of payment myopia is not being able to put down a deposit for any purchase.
The understanding of money, cash flow, basic economic/financial concepts, debt/risk management is no longer something which should just be left to the economists in the present globalised environment.
The basic mantra of money management is budgeting, prioritizing and educating ourselves to live within our means. It is imperative that as a community we learn to spend less than we earn as a starting point.
Then we can learn the accumulation of money and assets that will eventually grow sufficiently to allow the achievement of financial freedom, whilst still generating ongoing passive income.
What can help us identify potential financial problems in time to change spending habits is budgeting which is simply a forecast or prediction of cash sources and expenses recorded on a daily, weekly, monthly, or yearly tracking tool.
Compound interest refers the ability of an asset to generate earnings (or interest), which are then reinvested in order to generate their own earnings.
Time value of money tells us that a dollar invested today can earn interest and potentially become more dollars in the future.
Compounding works for you if you are a saver but works against you if you are a borrower.
The ultimate aim of a good money management is financial freedom which starts with the creation of a business that will eventually be working for you rather than you having to work for it.
As you build your business, the systems, resources and mechanisms that you put in place should allow your business to run itself, requiring less and less of your own time and energy to keep it running efficiently.
The principle of seedtime and harvest tells us that our sowing decides your reaping.
We order our harvest in advance by the seeds we plant so if we desire financial freedom in the future it is important that we all start saving a seed towards that objective.
Credit scores have a major impact on our financial lives. An excellent credit score results in lower interest rates on mortgages, car loans, and credit cards.
It also results in lower insurance premiums; Equating monthly payments with affordability; Making minimum payments on credit cards; Buying expensive brands when cheaper options exist
If we consider a person with $500 in credit card debt and $1000 in savings: The debt costs him 14 percent per year; Savings earn just 2 percent annually. He could pay off the debt, saving the $70, and still earn $10 annually on the remaining $500 in savings.
The Net result of making this good choice is that he's immediately $60 richer and can start saving faster. Maintaining financial health won’t be any more fun than getting regular health check-ups, but it can be just as important.
Going into the diaspora was a huge sacrifice to make and after all the long hours of toiling it is important to have a rewarding financial future and that begins with financial goals and the choices we make today.
Tafirenyika L. Makunike is a management consultant for Napachem (www.nepachem.co.za) and can be contacted on e-mail makunike@mweb.co.za
From New Zimbabwe published on 19/07/2010
