Are you thinking about exchanging your Naira for US dollars and then keeping those dollars at home? Before you make this decision, let me show you why this might be the biggest financial mistake you’ll ever make—and what you should do instead.
The Fluctuating Naira and the Temptation to Hoard Dollars
With the Naira fluctuating, it’s understandable that you might be tired of seeing your hard-earned money lose value. One day, it costs ₦1,000 to buy a loaf of bread, and the next day, it’s ₦1,025. You may feel trapped as your salary stays the same while the prices of goods skyrocket. Perhaps you have some savings that could have bought you a plot of land five years ago but now can’t even buy 100 bags of cement. I completely understand why you might want to protect your wealth by converting your Naira to dollars. However, keeping those dollars at home is not the solution.
The Security Risk of Keeping Dollars at Home
The first reason you should not keep your dollars at home is the security risk. When you store a large sum of money at home, it’s exposed to various risks like theft, natural disasters, and fire incidents. Even though Nigeria isn’t prone to frequent natural disasters, events like the current flooding can damage or destroy your money.
Let me share a personal experience. After working as a freelancer for a few years, I had never seen the US dollars I earned in person; everything was digital, transferred from one bank to another. One day, I decided to withdraw some dollars to hold onto them physically. I spent a small portion and kept the rest at home, just to look at it during the weekend. I know it sounds foolish, but this really happened.
After withdrawing the money, I became paranoid. I even stopped my cleaning lady from coming to work because I was worried she might take my money. It wasn’t that I didn’t trust her; she was new, and I didn’t know her well. I spent the entire holiday weekend worrying about that money until I could deposit it back in the bank. Keeping money at home, especially dollars, robs you of your peace of mind unless you have a very secure safe, and even then, you might still worry about someone accessing it.
Lack of Growth Potential
The second reason not to keep your dollars at home is that there’s no growth potential. Yes, the Naira is fluctuating, but don’t forget that there’s global inflation as well. For example, if you plan to travel abroad or need to import goods, the prices of these services and products are also rising. Even if you keep your dollars at home, their purchasing power could diminish over time.
A friend of mine exchanged her Naira for euros, planning to travel late last year. She couldn’t make the trip, and later realized that the money she had kept at home wasn’t enough anymore because the minimum balance required for a blocked account had increased. Had she invested that money in a fixed deposit or a foreign currency account, she would have earned interest and only needed a small amount to top up her balance. Instead, she had to find a way to add more money, since the funds she kept at home had not grown.
When you keep your dollars at home, you miss out on potential investment income. Even in a fluctuating economy, finding the right investment can help your money grow, which is far better than letting it sit idle at home.
The Impact of Inflation
Another critical reason to avoid keeping dollars at home is the impact of inflation. Inflation can erode the value of your money, even if it’s in dollars. Let’s say you kept $100 at home when the Naira was ₦40 to the dollar. Back then, ₦40,000 could buy quite a bit, but now that same $100 might exchange for ₦150,000 or more. However, what you could buy with ₦40,000 a few years ago is not the same as what you can buy with ₦150,000 today. The high inflation rate will erode any profit you think you’re making by holding onto dollars.
Opportunity Cost: Missing Out on Potential Earnings
Keeping your dollars at home also means missing out on the opportunity to earn interest. Imagine keeping $10,000 at home. That money isn’t earning anything while sitting idle. On the other hand, if you invested that same $10,000 in a Eurobond or a dollar-denominated fund, you could potentially earn around $700 in interest within a year. Even with global inflation, that $700 could help offset the rising costs, allowing you to maintain your purchasing power.
What Should You Do Instead?
Instead of keeping your dollars at home, consider investing in dollar-denominated funds. There are various options available, some of which allow you to start with as little as $100. For example, the new Nigerian Domestic USD Bond is an excellent opportunity, and there are other firms like ARM, Stanbic Asset Management, and GTBank that offer similar investments. These investments not only protect your money from theft and inflation but also provide you with returns.
All you need to get started is a domiciliary account. If you don’t have one, you can open one with the help of two guarantors who have current accounts. Once your account is set up, you can start investing and earning interest, securing your financial future.
Conclusion
In conclusion, keeping dollars at home is fraught with risks—security risks, lack of growth, the impact of inflation, and missed investment opportunities. Instead of exposing yourself and your money to these risks, consider investing in dollar-denominated funds that offer security and the potential for growth. By making the right investment choices, you can protect your wealth and ensure that your money works for you, rather than sitting idle at home.
So, before you make the decision to hoard dollars, think about the alternatives. Investing your money wisely can help you achieve your financial goals without the stress and risk of keeping cash at home.
