Practical steps to nurse finances back to health

Saving for a rainy day was not a priority for many people until Covid-19 struck two years ago.

But as the ensuing spate of job losses took its toll on individuals and families, the importance of financial preparedness came to the fore.

Due to the socio-economic impact of Covid-19 on households, some people sought mechanisms to mitigate the effect of the pandemic, including taking up expensive loans. 

In a report by the Kenya National Bureau of Statistics (KNBS) on the socio-economic impact of Covid-19, a majority of households (41.9 per cent) had to cut spending on non-essential commodities, while 36.7 per cent did not take any measure to overcome the financial distress caused by the pandemic.

Another 16.5 per cent of those surveyed took loans from credit institutions or money lending mobile apps, while 14.8 per cent took loans from friends, relatives and neighbours to cope with the adverse effects of the pandemic.   

And according to the World Bank, 21 per cent of the Kenyan population had been rendered jobless by the end of June 2020, three months into the pandemic. 

“The largest employment shock was felt in the urban and the more educated parts of the population,” said the global lender in its survey on the socio-economic impact of Covid-19.

The survey found that employment shocks in Kenya created a huge reduction in earnings and that more than one in four households surveyed sought additional income-generating activities between April and June 2021. 

TransUnion Kenya Chief Operation Officer Joseph Nyaga talked to Money Maker on how to get your finances back on track and improve your credit score while at it. 

1.      Budget, budget, budget

The only way to get on top of your finances and avoid overspending in 2022 is to create an effective budget. It doesn’t have to be complicated. List your monthly income and your monthly expenses. Once you have allocated the fixed expenses, such as your mortgage payment, school fees and credit card payments, you can set a realistic budget. 

2.     Save something for a rainy day

The importance of cultivating a saving culture cannot be gainsaid. Try to put aside a portion of your salary to meet unexpected financial crises, such as health emergencies or a major repair on your car or household appliances. This way, you will avoid having to resort to expensive credit to deal with unexpected expenses. “It is tough to save right now. But start small. Even five per cent of your monthly income can help you build up a nest egg that adds up over time. If you pay yourself first, it is also easier,” said Mr Nyaga. 

3.     Pay your debts

Prioritise your debts. Pay your most expensive debts first. If you can, pay more than the minimum balance owed each month or you’ll end up paying more interest than you have to. If you are struggling to make all your payments, it is vital that you speak to your lenders and restructure your loan repayments where possible. Once you default on a payment, it affects your credit score negatively, and this will hurt your chances of getting credit in the future. 

4.     Change your spending habits

It is vital to manage your exposure to credit. Make sure you pay off the full balance owed on your credit card every month. And if you want that fancy new big-screen TV, save up for it. Nyaga advises that “if you are financially stressed right now, you want to start planning how to avoid feeling the same next year.”  

5.      Get your latest credit report

Your credit report lists your current credit accounts, including credit cards, home, car and student loans. You can download your credit report for free once every 12 months from credit bureaus in the country. You can also request a credit report or access your Credit Reference Bureau (CRB) clearance certificate, which allows consumers to easily access their credit information.