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REALITY CHECK

Why people lose all their money and how to survive the downfall

Even the best-laid plans can fail due to unforeseen circumstances

In Summary

• Job losses can be a major setback, while business risks could wipe out investments

Piggy bank used to illustrate being broke
Piggy bank used to illustrate being broke
Image: STAR ILLUSTRATED

It's often a shock when people perceived as financially stable reveal their true state of affairs. Even the most upright of persons may succumb to a financial catastrophe that may completely wipe out their wealth.

There are many reasons why people lose all their money and plunge into poverty. The individual may have been reckless, lacking financial management skills, or was not paying enough attention to their finances. On the other hand, financial losses may arise from factors outside the control of the individual.

A medical emergency in the family, loss of income, a national economic downturn, or destruction caused by political instability can push individuals into the financial abyss. For example, almost all business was affected by restrictions meant to control the Covid-19 pandemic. Some businesses, such as bars, stayed shut for six months. Schools are yet to reopen and this is a huge loss to the owners and employees of private schools.

 
 

The tragic story of losing wealth is trending in Kenya after it emerged late September that a well-known media personality, Lolani Kalu, was living in poverty at his rural home. Lolani, now aged 56, is famous for hosting Swahili language radio and television programmes since the early 2000s.

Not much has been heard of him over the past two years until his most recent picture was posted on social media. It was clear that Lolani was going through hard times.

Speaking after the photo went viral, Lolani said his woes began when he was among employees laid off by his then employer back in 2018. Furthermore, he lost Sh1.5 million to a contractor he had hired to build a house in Nairobi.

As the sole breadwinner of his immediate and extended family, Lolani eventually depleted his savings and relocated to his ancestral home in Kilifi county. The revelations aroused sympathy across the country and Lolani is currently getting financial assistance from fans.

It is not only famous personalities who may experience a sudden reversal in fortunes. Until four years ago, Lilly Mumbi, 38, ran a fairly successful hairdressing business in Nakuru. The income from the business was enough to pay school fees for her children, one of whom was joining a university in Nairobi. A friend encouraged her to get into the car wash business, which was booming at the time.

“I took a loan of Sh100,000 from the bank to set up the business," Mumbi recalls. "I hired a small plot along the highway but most of the money went into equipment, especially the car washing machine."

As she was still running the hairdressing business, Mumbi employed some young men to handle the car washing business. Business picked up nicely and the future seemed bright.

 

Life began a downward tumble only a few weeks after starting the new business. "One morning, I got a call from my workers at the site that there had been an accident. The car washing machine was hit by a customer's car. The machine was rendered inoperable in the accident. I could not afford to repair it because the quotations I was getting were so high, it was almost similar to buying a new machine," Mumbi says.

With the new business no longer bringing in the expected income, it wasn't long before Mumbi fell behind on her monthly loan payments. This affected her hairdressing business, too. At first, there were no funds to buy items for the salon. Eventually, she couldn't afford rent for the premises and had to close the business.

With no income, Mumbi went through very difficult times for two years before she landed a job with the county government. The income from employment, though modest, helped stabilise her finances, and she is well on the way towards clearing her loan arrears.

Every business decision contains risk. A sober, rational business decision backed up by a well-thought-out plan has a very strong likelihood of succeeding, but there's always a possibility of failure.

Unforeseen circumstances may come in the way. British entrepreneur Richard Branson once said it is impossible to run a business without taking risks. "The brave may not live forever, but the cautious do not live at all," he said.

 

SURVIVING FINANCIAL DISASTER

What can you do if financial disaster strikes?

  1. Stay active: Keep seeing your friends, keep your CV up to date and try to keep paying the bills. If you have more time because you're not at work, do some form of exercise; physical activity can improve your mood if you're feeling low. Pursue a hobby where possible.
  2. Accept and face your fears: For example, if you're going into debt, get advice on how to prioritise your debts. When people feel anxious, they sometimes lose their self-confidence and avoid talking to others. If this starts to happen, facing these situations head-on will generally make matters easier to handle.
  3. Avoid drugs and alcohol: For some people with money worries, alcohol can become a problem. You may drink more than usual as a way of dealing with your emotions or just to fill in time. But alcohol will not help you deal with your problems and could add to your stress. Apart from increasing your expenses, excessive drinking can ruin relationships.
  4. Do not give up your daily routine: Get up at your normal time and stick to your usual routine. If you lose your routine, it can affect your eating; you may stop cooking, miss breakfast because you're still in bed, or eat snacks instead of having proper meals. All these can negatively affect your health. Getting sick is the last thing you need as you try to get back on your financial feet.