The lingering economic repercussions of COVID-19, the Russian-Ukraine war and rising inflation continues to impact consumers’ personal finances. While various countries are taking steps towards overcoming these adverse effects, and fostering robust economic recovery, they have had to grapple with the effects of new coronavirus variants and the Russian-Ukraine war which include major disruptions to global supply chains and significant increase in inflation. The Cayman Islands, much like the rest of the world, has also been battling rising inflation and interest rates impacting the cost of living and ultimately resulting in an increase in expenditures for consumers and lower disposable income.
Globally, many Central Banks have been tightening monetary policies, majorly through interest rate hikes, in an effort to tame the high inflation. The U.S. Federal Reserve, for example, has raised interest rates seven times this year, to date. As reflected in the quarter Q1 2022 report prepared by the Cayman Islands Government Economics and Statistics Office, the continued tightening of monetary policy in developed markets ultimately has an impact on the Cayman Islands’ economy, especially given the significant role of the US Dollar in the domestic economy and the interconnectedness to the global market. As a result, local banks have followed suit in increasing their benchmark lending rates. In this regard, now more than ever, consumers should be conscious of their spending and should practice prudent planning and management of their personal finances.
As part of the Cayman Islands Monetary Authority’s (“CIMA”) ongoing efforts to enhance consumers’ financial education, we wish to highlight some useful tips on how consumers can proactively respond to the economic challenges in the planning and management of their personal finances.
- Enhance your financial literacy – The more you know, the more prepared you will be to make prudent financial decisions. Financial literacy allows consumers to make informed decisions regarding their personal finances. There are number of free, reliable resources available on the public domain. CIMA is actively addressing a number of strategic priorities to keep investors and consumers informed. For more info, see our ‘I Learned the Hard Way’ campaign along with other available resources.
- Create a budget and cut back on unnecessary expenses – Creating a budget allows consumers to live within their means and avoid unnecessary spending and impulse purchases. Consumers should establish a monthly budget to aid in appropriately allocating spending and ensure all necessary expenses and debts are adequately covered.
- Establish an emergency savings fund – Consumers should create an allocated savings account funded from their regular income, at least 20% of your monthly income. As a part of the monthly budget, it is important that consumers ensure a reasonable portion of their monthly income is allocated towards an emergency savings account.
- Recognise early signs of financial trouble and contact your bank - At the first sign of financial trouble and/or concerns regarding the probability of meeting future repayment obligations, contact your bank and/or financial institutions where you may have a mortgage and/or other debt obligations to explore the options available to you and a solution that works for you. This may include investigating debt consolidation, refinancing, restructuring of your facility, negotiating long term fixed rates, etc. Do not wait until you have defaulted on your obligations. Please also refer to our tips on Understanding Foreclosures.
- Be proactive and seek assistance – No one is immune to financial difficulties, and most have faced a “rainy day” at one point or another. The best way to prepare for a potential rainy day is to be proactive! When you recognise early signs of financial difficulty or experience an unexpected traumatic event that may inadvertently impact your personal finances, it is important to proactively seek a solution. Reassess your budget and financial position and, if necessary, seek assistance.
- Talk to an expert – Don’t be afraid to reach out for help. Seek guidance from industry professionals such as a financial planner, financial coach, debt counsellors, local bankers, etc. Whether it be seeking ways to increase your income, minimise your debt, or aiding you in appropriately budgeting your finances. It is always good to seek assistance in ensuring that your assets and liabilities are appropriately structured in a manner that ensures you are in the best financial position to respond to prevailing economic circumstances, including a cushion from negative effects of increases in interest rates and rising inflation.
- Create a long-term financial plan – Set some long-term financial goals whether it be for a month, year or longer and create a plan to achieve it. Incorporate your goals into your budget, setting aside a calculated portion of your income for the determined timeframe to ensure you achieve your goal. Most importantly stick to your plan as best as you can.
Leave a comment