Retirement savings v Emergency fund in uncertain economic times.

 

This article first appeared here.

Which  should be the priority in uncertain economic times? Retirement savings  or emergency fund?

When you’re nearing your retirement and you’re  working and living on a tight budget in  uncertain economic times, when future economic environment is unpredictable, it’s always going to be difficult to know which to prioritize between retirement savings and emergency fund.

The reality of life is, both are necessary.

It is necessary to set aside a stash of money to take care of income and  spending upsets.

No one prays for a job loss but it can’t be ruled out in uncertain economic times.

And in life, no one prays for unwanted expenses like a medical emergency, but it still happens.

So, an emergency fund is necessary.

 The regular contribution to  retirement savings is also necessary. 

Why is it necessary? 

70 years is the age of retirement from active service. 

You’re expected to bow out of active service when you clock 70 and depend on your retirement savings as your major source of income.

So since both are necessary to help reduce financial stress and avoid interruption to a lifestyle you are used to, you need to strike a balance.

How can this balance be achieved?

By working out a ratio that allows you to contribute regularly to reach the maximum level of your retirement savings and also have a cash reserve that’d cover at least, one year expenses on basic needs. 

This is a conservative approach.

You may decide to have a balance that suits your personal preference and career field.

What is that one thing that guarantees business survival which every startup must know and do?

 

There's no one magic wand. Business survival and success depend on managing a combination of factors successfully. 

Pause! This combination must be driven by a clearly thought out selling point matched by a singularity of focus.

This selling point, a summary of  the primary reason customers should choose you to do business with instead of competition, is the driver of business survival and success 

After you have clearly defined your selling point, shift your focus to situate it with needs and expectations of your target market, investors, suppliers and the public.  While at it, don't forget to be flexible and adaptable to changes.

Don't also forget that the customer is king. Therefore, customer satisfaction should be regarded as a very important consideration for the sake of business survival and success. 

Another point to keep in mind is that business success takes time. At the early stages of the business, expect expenses to exceed revenue. But with time, a great team and excellent financial managment, your business should break even and go on to make steady profits.

Excellent financial management can be summarized as;

1. Effective budgeting,

2. Efffective source and application of funds management,

3. Effective accounts receivable, cash flow and inventory management strategies.

Now know that no matter how good you're at managing your business, you would still face challenges. But none would be insurmountable.

Which dividend stocks will continue to grow over the next 5 years?

 

Businesses associated with constantly rising share prices and a corresponding constantly rising dividend payouts are  attractive to dividend stock investors.

This is because, investors are confident that these businesses have managements that set and achieve progressively increasing total sales revenue and declining total costs. 

The result, progressively rising profits for appropriation as retained profits, dividend payouts and reinvestment for growth and expansion purposes.

Now, which dividend stocks will continue to grow over the next 5 years?

No one can accurately predict future share prices. Share prices are influenced by speculators' often irrational decisions. 

However, as an investor, you can make near accurate predictions by picking and investing in a portfolio of at least, 15 financially strong and stable high dividend paying businesses. Such businesses can be selected from the "New York Stock Exchange’s 106 Best High Dividend Stocks - Analyzed and Scored” reference book. This book was released in December, 2022.

From this book, the following dividend stocks would, all things being equal, continue to grow over the next five years;

1. Delek Logistics Partners LP (DKL)

2. Chevron Corporation (CVX)

3. Canadian Natural Resources (CNQ)

4. CTO Realty Growth (CTO)

5. Chenier Energy Partners LP (CQP)

How does price earnings (P/E) ratio affect the dividend policy of a business?

 

Every business set up for the purpose of making profit is primarily interested in reaching and maintaining a high level of performance where revenue exceeds expenses.  It measures its performance in terms of of the price of its shares, dividends and number of issued shares.

A business's dividend policy including the stability of the policy, is tied to the business's earned profits, cash flows, prospects of growth and the preferences of shareholders or investors.

Shareholders or investors considering investment options would assess dividend policies and results of shareholder or investor ratios (especially the price earnings ratio) of available businesses before making an investment decision..

The dividend policy indicates the proportion of earned profits a business is willing to pay out and the regularity at which dividends are paid out. 

Now note, when a company is not making stable profits, their shares will not yield regular dividends. 

What is the price earnings (P/E) ratio?

The price earnings ratio is an investor or stock market ratio that compares the market price of the shares to the earnings per share. This is calculated thus;

Market price/earnings per share.

Earnings per share (EPS) shows the proportion of a business's profit attributable (after deducting tax, minority interest and preference dividends but before considering extra ordinary items) to each common stock (or share) or attributable to issued number of common stock ranking for dividend. 

What is a good price earnings (P/E) ration?

There's no fixed rule for determining a good price earnings ratio. Generally, the lower the P/E ratio, the better. Why is it better? Because as the P/E ratio falls,  the dividend payout ratio is also lowered.

A lower dividend payout ratio is an indication that a business can pay regular dividends as it would have more retained profits to expand and grow. Dividend investors like a lower payout ratio.

The dividend payout ratio is calculated thus;

 Annual dividend per share/ earnings per share (EPS)

Why is financial literacy important to good personal finance management?

 

Do you have a plan for your future? The answer is most likely a quick YES!

Does that plan include a financial plan (a budget to control your spending, saving and dictate your invesments)? The answer more likely a NO! 

Many make plans for the future without including a financial plan in them. Why do they ignore this all important map and means to get to their goals? It's most probably because they don't have a financial literacy. 

What is financial literacy?

Financial literacy is the acquisition of at least,  a basic financial knowledge that helps you to know how to fill your needs, spend responsibly and still set aside (save) a portion of your income for the future. 

Why is it important to save a portion of your income? So that you can have a significant portion of capital that may be required to invest, grow and secure a lifetime financial stability

Also for the sake of the protection of your investments (and your entire personal finance) against future risks and unertainties , financial literacy is very very important.

The possession of quality financial literacy therefore, improves personal financial decisions about budgeting (the primary importance), savings, investments, insurance and the building of a reliable nest egg (retirement savings). 

It's worthy to note that;

 

"An investment in knowledge pays the best interest." — Benjamin Franklin.

An investment in financial knowledge pays the best interest that is large enough to guarantee financial freedom and stability in the present and in the future.

What are personal financial activities? They are explained below;

1. Budgeting - 

The simplest definition of a budget is “telling your money where to go.” – Tsh Oxenreider.

Budgeting is the process of preparing a detailed short term personal financial plan that is expressed in monetary terms.

The process of budgeting yields a financial plan ( an estimate/a budget) of expected revenue and expected expenses for a given period, usually one financial year.

A good personal financial budget should make the effective control of control of spending possible. It should also encourage savings and  the development of a sound investment habit.

2. Spending -

A sound financial knowledge gives you the power to keep your spending within budget, on filling absolutely necessary needs and avoiding unnecessary spending. Unnecessary spending creates indebtedness and discourages savings.

3. Savings - 

Revenue for a specific period - Expenses for the same period = Savings for that period.

As mentioned in (2) above, a good personal financial knowledge should help you weed out unnecessary spending and save a substantial amount within a specific period.

Why is it important to have savings?

4. Investment -

Investment is one of the primary reasons to have a substantial amount of savings at a given time.

This is because as Muhtar Kent correctly observes, "Without investment there will not be growth, and without growth there will not be employment." 

So, when you invest, you create opportunities for yourself and for others to grow and be employed.

A good investment is an asset that generates positive returns. These returns could form a significant equity contribution to a small-to-medium scale business startup capital, which would create jobs.

5. Insurance -

Life is full of risks and uncertainties. Tomorrow is promised to no one. 

There are no guarantees that uncertainties would not arise  tomorrow to destroy today's certain source of survival. 

This is a reality of life and this reality makes it necessary to protect (insure) your personal finance.

This protection may be in the form of taking out relevant insurance policies but you must know the relevant insurance policies to go for. 

How would you know the insurance policies needful and relevant to you, your family and your business? This is where the acquisition of a sound financial knowledge is useful. You need a financial knowledge to guide you to experts.

Other forms of protection against possible loss of financial stability in future are investment in less volatile assets like real estate and building a sufficient nestegg.

6.  Nest egg - 

Often  many self-employed business owners don't see the need to save a substantial amount of money for retirement. A nest egg could be used to take care of unexpected emergencies.

The above benefits of having a substantial retirement savings are a product of financial literacy.

Marketable securities meaning and examples.

What are marketable securities as a short term investment option?

First, what are marketable securities?

Many businesses prefer to invest most of their liquid resources in marketable resources instead of keeping them in idle cash.

Businesses prefer holding a greater portion of their liquid resources in this form, because marketable securities can be easily and quickly bought or sold (they are highly liquid, that is, easily converted into cash) at quoted market prices daily, on securities exchanges.    

Marketable securities consist basically of bonds and common stock of publicly owned companies. Investments in marketable securities yield returns in the form of interest and dividends. 

When marketable securities are bought, how is the purchase price calculated?

ABC Company makes a short term investment by buying 10,000 shares of the common stock of XYC Company at $0.35 per share. ABC also pays a brokerage commission of $500. The purchase price is $4,000 (10,000 x $0.35 + $500).

What happens when marketable securities are sold?

Either of two things happens when marketable securities are sold. The sales of a short term investment in marketable securities can either produce a gain or result in a loss.

A gain is produced when the sales price is more than the cost. For an example,  if ABC Company sells the entire 10,000 shares  of its XYC company for $0.50 per share and paid a brokerage commission of $500, the gain is $500 (10,000 x $0.50 - $500) - $4,000).

A sale at $0.40 plus a brokerage commission of $500 will result in a loss of $500.

A gain on sale of marketable securities by ABC Company could result in an increase in its market value. A loss on the other hand, could result in decrease in its market value.

Businesses classify their marketable securities on the basis of the length of time they decide to hold the securities. So, marketable securities may be classified as any of;

 

1. available for sale (APS) securities,

2. held-to-maturity (HTM) securities and,

3. trading securities.

1. Available-for-Sale (AFS) Securities.

Businesses hold available-for sale securities in both equity and debt for a while but can sell them as they often have a ready market price available. Most businesses classify their securities as AFS.

2. Held-to-Maturity Securities:

Held-to-maturity (HTM) securities are purchased and held until maturity. 

Held-to-maturity investments are commonly made in the form of bonds. Bonds have fixed maturity date and predetermined payment dates. Also, investors usually purchase bonds with the intent of holding them until they mature.

3. Trading securities

Trading marketable securities are bought and held for sale in the short term. The purpose for holding them is to make a profit from quick trade as opposed to holding them until maturity.  

What Is Personal Income Statement ?

What to know about inflation.

 

What Is Inflation?

Inflation reduces the purchasing power of money (purchasing power, the quantity of goods bought by an amount of money).

 Inflation reduces the purchasing power of money in a growing economy by triggering rising prices of consumer goods and services.

`A slow and steady rising of prices caused by an inflation rate of at about 2% is okay. But when the rate rises faster, sometimes to double digits, then it can have a negative impact on personal financial management.

For instance, as a consumer, you would be time consuming to compare and determine best prices to get goods and services at a given moment.

How is inflation measured?

Inflation is measured by using the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCI) tools. 

The Consumer Price Index tracks prices for individual goods and services which households are buying. 

The Personal Consumption Expenditures, PCE, tracks changes in prices of consumer goods and services which businesses are selling.

The CPI reports a higher inflation rate than PCE but the PCE is considered the more reliable indicator.

What are the types of inflation?

The three main types of inflation are the demand-pull inflation, the cost-push inflation,    and the built-in-inflation.

The demand-pull-inflation is an economic situation where the demand for goods and services drive up their prices. Consumer demand pulls up prices when quantity supplied falls below quantity demanded. 

The cost-push-inflation occurs at the peak of demand-pull-inflation. It is an economic situation where increase in costs of raw materials is transferred to final consumers through increase in retail prices. 

The built-in-inflation occurs as a result of increase in wages or salaries and increase in prices of consumer goods and services. The consequence of demand-pull-inflation and cost-push-inflation, which is, increase in prices, affect all consumers including workers. To continue to afford basic goods and services, these workers are going to ask for a pay raise. When this request is granted, a built-in-inflation occurs.  

As a consumer, what should you do during inflation?

Have a good budget and stick to it. Your budget should include provisions for timely settlement of debts and investments in commodities, gold, silver, equities and real estate.

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What is the difference between break-even analysis and payback period in terms of cashflow?

 First, what is cash flow>

Cash flow is defined as an increase or decrease in an amount of cash.

And what is cash?

Cash is defined as ‘cash held  in hand’ and any deposits repayable on demand with banks and any other qualifying financial institution, less overdrafts from a bank and any qualifying institution, repayable on demand. 

What then is the difference between break- even analysis and payback period on the basis of cash flow?

The term break-even analysis as commonly used, does not capture the true meaning of the interrelationships it explores. Break-even analysis is not only concerned with the level of activity which produces the break-even point (where neither profit nor loss is produced). It is more concerned with how costs and profits behave at other levels. This is why the alternative term. Cost-volume-profit (c-v-p) is often used. 

Break-even analysis or c-v-p analysis is relied upon for short term planning and decision making. It uses principles of marginal costing to explore relationships that exist among costs, small changes in output levels, revenue and profit.

The application of break-even analysis depends on some basic assumptions. Some of them include;

There will be no uncertainty,

All costs can be accurately resolved into fixed and variable costs,

Fixed costs will remain constant and variable costs will vary proportionately with activity,

Volume is the only factor that affects costs and revenues

No stock level changes or that stocks are valued at marginal cost only and,

That break-even analysis relates to a single product or constant sales mix.

How can break-even (c-v-p) be analyzed by formula?

Break-even point (in units) = fixed costs/contribution per unit   (contribution = selling price – marginal cost),

Break-even point ($ sales) = fixed costs/contribution per unit x sales price/unit.

What is payback?

Payback as an investment appraisal technique, is defined as the time required for the cash inflows from a capital investment project to equal the cash outflows.

Payback is a method used to reduce risks and uncertainties associated with a project. The usual decision rule is to accept the project with the shortest payback period.

In applying a payback time limit, either a project in addition to paying back within a certain time limit should show a positive net present value (NPV) from its net cash flows. Or a project is expected to pay back in discounted cash flows within a certain time period.

Payback is the most popular project appraisal technique because it is simple to calculate and understand. It other advantages include;

 it favors quick return projects and thus, minimizes time related risks and,

Its objectivity (it uses project cash flows instead of accounting profits).

However, payback analysis is not a measure of the overall worth of a project.

House rich (asset rich), cash poor? What should you do?

House (asset) rich, cash poor is a product of you putting most of your wealth (equity) in real estate that's difficult to convert into cash. 

Investing in real estate is a good financial decision but it may constitute a problem if you don't have sufficient liquid cash in the pocket and bank to maintain your lifestyle and, pay short term debts as they mature.

Being house rich, cash poor is an uncomfortable position where the struggle to hold onto real estate would cause you to keep on postponing, enjoying the benefits of being a homeowner.

To solve this problem, you striking a balance between your real estate asset and your liquid assets (top among them is cash) is necessary. This stability would translate into having sufficient funds in your savings or checking accounts to settle current liabilities as they fall due.

Apart from cash, other highly liquid assets are stocks and bonds, but it's more complicated to convert them into cash.

How do interest rate fluctuations affect your money?

 

Why should you be bothered about nterest rates?

"Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices." - Warren Buffett.

Prices of assets, cost of borrowing and rewards for savings are tied to the rise, fall and stability of interest rates.

Interest rate for borrowing (cost of borrowing) is the percentage of the loan amount. The higher this percentage is, the more the interest to be paid back in addition to the principal..

At lower interest rates, borrowing to buy big assets is more attractive than borrowing to aave. 

At lower savings rate, a percentage of savings paid into a savings account is less than at higher savings rate. So, it makes more sense to borrow to spend and buy assets rather than borrow to save and be rewarded with low interests.

At lower interest rates, spenders pay less interest and have more money to increase their spendings on consumer goods. This leads to increase in the production of goods and to the creation of more job opportunities.

Higher interest rates are going to force you, the consumer, to reduce your spending as you're going to have less money to spend. Why would you have less money to spend?

It's obvious that a higher interest rates, banks would give more stringent conditions to prospective borrowers. The result of tough requirements would produce few with the capacity to meet them. Therefore, fewer loans are going to be given

What are the most important career break reasons?

 

These reasons are, to have the time to learn the true meaning of life and enjoy its beautiful gifts, found in abundance outside the work environment.

Have you forgotten that life's pleasant and exciting surprises, are presented to travellers?

Surprises and nature's strange things told and found in books seem fictitious until they're lived and experienced. So, go ahead, take a career break and find out what life is all about.

Another reason is, so that life will not leave you behind. Life leaves behind the redundant. 

It's an ever changing dynamic world out there. Acquiring a new set of skills keeps you ahead of the game. A new set of skills can hardly be acquired without taking a career break.

"Work is a rubber ball." Gary Keller observed and continued, "If you drop it, it will bounce back. The other four balls- family, health, friends, integrity- are made of glass."

Your family is a glass ball, if you drop it, it could be irrovocably  shattered.  Sometimes to achieve a balanced life, you may need take a career break to spend quality  time with a disintegrating family and strengthen the bond.

You would also need to occasionally spend quality time with true friends to  prove their importance to you. Finding the time to be with friends could be a huge sacrifice that are greatly appreciated.

What about your health? The journey of life takes everyone to the crossroads, where it's unavoidable to take a career break from the stress of work to take care of one's mental health. Most people ignore the need to take a break and continue to work until they break down and become useless to themselves and their loved ones. 

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Work is a rubber ball. If you drop it, it will bounce back. The other four balls-- family, health, friends, integrity-- are made of glass. If you drop one of these, it will be irrevocably scuffed, nicked, perhaps even shattered. - Gary Keller

What are dividend growth stocks? Which are the best today?

"Returns matter a lot. It's our capital." — Abigail Johnson

The accumulation of wealth from investments in stocks is determined by the long run rate of return on investments.

Many investors find companies that pay regular and increasing dividends attractive. 

Investors believe that a company with a history of strong dividend growth are on the path of long term profitability and that, part of their profits, would consistently be appropriated to grow their dividend.

However, what is the primary input of the stock valuation method, investors in dividend growth stocks use to determine the best stocks to invest in? It's the dividend growth rate.

What is the dividend growth rate? 

The dividend growth rate is the percentage rate of growth that a company's stock's dividend experineces within a given period of time. It's calculated annually.

Examples of companies with dividend growth stocks for the month of February, 2023. - fool.com

What Is Project Cost Management?

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Thorough project management knowledge, skills and techniques are necessary for the successful execution of a project from iniatiation to closing. 

One of the tools for a successful  project execution is an effective project cost management.knowledge.

Project Cost Management includes necessary techniques or processes for the completion of projects within approved budget.

These processes are estimation of costs, determination of budget and control of costs.

1. Estimation of costs -

The establishment of monetary resources required to successfully complete a project is crucial.

Some of the techniques used to estimate costs include 

a. parametric estimating - the parametric cost estimates are calculated by using the relationship between historical data and other variables such as cost, budget and duration.

b. reserve analysis - cost estimates sometimes include reserve analysis- this analysis is relevant to cost estimates that contain cost uncertainty. 

The uncertainty is accounted for by including contingency reserves or allowances in cost estimates.

Contingency reserves are often required as part of funding requirements.

c. analogous estimating - this techilnique uses values obtained from scope, measures of scale, budget and duration. The technique relies on historical costs of similar projects done in the past, to make estimates for a current project.

There are other tools such as expert judgement and the bottom up estimating 

2. Determination of Budget.

Budget determination  is a process that aggregates cost estimates of activities to establish an approved baseline. 

The established baseline would include authorized budgets (standards for assessing project cost performance) and exclude reserves made by management.

Some of the tools used to determine project budgets are expert judgement and budget reserve analysis.

a. Expert judgement is made on the basis of expertise in industry, knowledge of the project area and relevant experience.

b. Budget reserve analysis is used to establish both managment and contingency  reserves for a project. 

Contingency reserves as pointed earlier, are necessary because sometimes during project execution, some unplanned changes may become necessary. 

3. Cost control.

This is the process of monitoring a project, updating the budget when it's necessary and managing changes to baseline.

Some of the techniques used are forecasting, performance reviews, Earned Value Management and variance analysis and To-Complete Performance Index (TCPI).

5 Great Ways To Prepare For A Job Loss.

Recently, job cut has become a constant reality. The reason is, many economies are frequently in and out of depression.

Businesses would always do all they could to push total revenue above total costs. If sustained profitability is the oxygen of every successful business, cutting costs would always be applied to avoid suffocation.

Job cut is most busineeses'  primary cost cutting tool. What this means is, right now, someone has just lost a job or is about to lose a job for no fault of theirs. But...that wouldn't be the end of life.

There's life after a job loss. A weak economy could recover quickly, grow rapidly and give businesses opportunities to hire again. But one would have to be alive, sound and prepared when the next employment opportunity shows up.  

This post gives useful tips on how to prepare for a job loss and survive a layoff.

1. Invest in continuous learning.

Don't stop learning after you've secured your dream job. Having a dream job is not the same as having job security.

As we already know, some extraordinary event could occur and cause business giants to layoff their employees. So in reality, there's no true job security in paid employment.

But you can build an enduring job for yourself. You can start from the scratch and build it all the way up while you still keep your day job. There's a condition, you must learn new things every step of the way to make a success of it.

Investing in continuous learning also gives you an edge, In case, you lose your job and start job hunting. Possession of extra useful skills is going to place ahead of the competition for a good job.

2. Update your resume regularly.

As you acquire new skills, add them to your resume and update it. Never allow the lucrativeness and security that present job seems to offer, lull you into forgetting to regularly update your resume.

Don't also be too comfortable in your present job and forget to constantly be on the look out for better opportunities. 

3. Set up an emergency fund.

You should be able to continue to fill basic needs for the short period you may be out of work. 

No job, no more income, so where would the money to pay bills come from? From an emergency fund, assuming one was set up when in paid employment 

If you don't have one? Now may just be the right time to set up one. You can't tell what's going to happen next 

Experts advise that you should have in that fund, an amount that would be enough to cover your living expenses for a period  between 3 and 6 months. Aim to have an amount that should cover living expenses for a longer period.

Keep this fund in a place that's secure, quickly accessible and not in a long term time deposit account.

4. Build a worthy network.

When you're in a good job, don't remove yourself from the circle of valuable friends and professional colleagues. Keep them, make yourself useful to your network and continue to expand.

A good network is a lauchpad to greater things . Don't forget that there's no limit to the support a good friend could give in times of need. 

5. There's life after a job lose.

When you lose your job, sit down and take stock of your life. Don't panic! It's not the end of life!

There are always bigger and better things ahead. You can rise from the ashes of a job loss to live your dream llife, become a role model and a source of inspiration to thousands or even millions of people 

The proposed common currency, the "sur": What investors should expect.

 Argentina and Brazil are set to begin preparatory work to establish the second largest currency bloc in the world. The name suggested for the new currency is "sur". 

The "sur" when it officially becomes a medium of exchange in the two largest latin American economies, would facilitate comparisons of prices and other key investment decision parameters. 

What else should investors expect?

A look at lessons from "euro", the largest currency union would be helpful.

The euro eliminates currency risk within the eurozone. It facilitates and promotes cross border invesments by businesses. Businesses operating in both Argentina and Brazil would no longer face currency risks if and when sur becomes a daily currency in both countries.

Elimination of currency risks and facilitation of price comparison would enable cross border businesses in the two countries to lower costs and increase profits. How?

Businesses would have a range of best deals from suppliers to choose from. They would also use the ease of labor mobility to easily move their best hands between both countries. 

They would have the enabling environment to create packages that attract best hands from competitors within the currency union.

There's also enjoy benefits deriveable from the possibility of currency stability. One of them would be the lowering of interest rates and the increasing of the possibility of appropriate capital allocation between subsidiaries. 

However, during a period of depression in a partner currency, economic growth would slow down and unemployment would increase. When this happens, investors would become apprehensive about liquidity. 

A shrinking in the volume of cash in circulation would cause interest rates to rise. The common currency policy is unlikely to allow a partner country to unilaterally print more money, inject it to stimulate the economy and reverse an economic depression. Businesses would have to cut jobs and eventually, die if the situation persists.

Balancing the budget is like going to heaven. Everybody wants to do it, but nobody wants to do what you have to do to get there.– Phil Gramm.

Every budget is a test of your capability to balance your expenses and your income.

It's a tough test that many of us fail. The reason is simple, most of us are never prepared to live within our means.

Most of us when we have a little, we want to prove to those who don't really care about us that we have arrived 

and when we're sent packing from the heaven the people built for us, we go outside our means to buy mansions in the hottest part of hell in attempt to prove to the world that we are still in heaven.

Who really cares about where you're , what you have and how you are at any time of your life?

Maybe your loved ones, outside them you're alone.

So, if you want to balance your budget and achieve financial freedom,

you've to die to what people think of your lifestyle, how they live without fiscal discipline and live within your means.

Special Purpose Vehicle, SPV, Isn't Always Created To Commit Financial Fraud.

What's the primary job of every entrepreneur? Take profitable risks, do everything legitimate to at least preserve capital when profit can't be made.

This job wouldn't be done when a business survives the volatile early stage, breaks even, enjoys profitability for few years and then goes bankrupt as a result of venturing into risky ventures. The going concern concept would be defeated. 

So, what long term business survival options do some entrepreneurs pick to preserve their assets when they go into volatile ventures? One of them is the Special Purpose Vehicle (SPV) also known as Spechial Vehicle Entity (SPE).

A special purpose vehicle or special purpose entity is defined as a subsidiary created by a parent company for a special purpose.

The special purpose most often, is to isolate a parent company from financial risk by providing securitization of assets 

The above is made possible by the fact that SPV has Its legal status as a separate company. This status makes its obligations to secure its assets in the eventuality of the parent company going bankrupt possible. This is why SPV is sometimes called a bankruptcy-remote entity.

As a subsidiary with a legal entity status, a SPV has its own distinct balance sheet ( a picture of its assets, liabilities and capital) that's often off the balance sheet of the parent company. This is where investors have a problem with SPV, as it could be exploited to hide losses

However, some businesses create SPV for one purpose, to aecuritize debt and give investors the assurance of repayment. And not always to commit financial fraud 

Learning Curve Theory

A worker is likely to gain experience, become more efficient and faster as they carry out a repeated performance of a job task. Human beings improve skills, gain experience, exposure and specialize as they repeat the performance of a particular task. This is known as the learning curve effect.

A worker with the no previous experience and knowledge is untried the first time they perform a new operation. As the worker repeats the operation and becomes more familiar with it, their labor efficiency increases and their labor cost per unit decreases. After the passage of time, the regular rate of decline in cost per unit is established and used as a basis to predict future labor cost..

The learning process begins at the point the first unit comes off from the production line. And each time cumulative production is doubled, the average taken to produce a unit of cumulative production is a percentage of the average time of the previous cumulative production.

What is the learning curve theory?

The learning curve theory says that whenever a repetitive task is performed, the average time spent to produce a unit falls by a specific percentage as the activity level is doubled. For example, there is a learning phenomenal of 80% for a 20% decline in average time and a 75% learning phenomenal for a 25% decline in average time.

The learning curve is the mathematical expression of the phenomenon that when a complex and labor intensive procedures are repeated, unit labor times tend to decrease at a constant rate.

Naira Redesign, Withdrawal Limits And Credit Worthiness of Nigerians.

 

Currency redesign by the Central Bank of Nigeria and its complementary withdrawal limits have come to stay.

The recent news from the Central Bank of Nigeria (CBN) is an indication of the near irreversibility of the policy implementation. The news claimed that volume of currency in circulation, not in vaults of banks has dropped by at least 5 percent in just one month.

So withdrawal limits are going to be enforced to the letter but Nigerians may not have the luxury of time (Senate is urging CBN to set June 30, 2023 as the new deadline). 

In the event of no deadline extension beyond January 31st, 2023, how're Nigerians going to make urgent purchases above weekly withdrawal limits? Or even make long term arrangements?

Financial transactions are often done on two bases, cash and credit. In many economies, where individuals take their creditworthiness serious, most financial transactions are done on credit basis. In Nigeria, it's mostly on cash basis and soon, this is no longer going to be possible for transactions that involve a lot of money. 

Payments for large purchases would be made mostly either through the online banking channel or on installmental basis (this is where trust or positive goodwill would be a major consideration).. 

The installmental payment arrangement would force many Nigerians to pay serious attention to their creditworthiness. The time to start doing that is now.

Nigerians have to begin to build their capacity to meet current maturing liabilities (pay what's due as at when it's due). To build this capacity successfully, Nigerians would have to learn to make budgets and stick to them.l (time for strict fiscal discipline).

Budgets should include amounts and time to pay all outstanding current liabilities. When you think other distractions may cause you to forget, give your banker standing orders to effect payments to your creditors when they fall due. Failure to pay what is owed at agreed time would not improve credit worthiness. 

Don't buy on credit and make an arrangement to pay installmentally in anticipation of a cash inflow that is not regular. Credit purchases and commitments to pay should be tied to only regular income. 

When you fail to pay up when payment is due, it affects the business of a creditor negatively. The creditor may no longer have the fund to restock and continue in business. 

And when the creditor is forced to go out of business because of indebtedness, the world would get to know about how seriously unworthy of credit some people are (bad character, bad publicity). Make sure your name is never on that list.