Archive for 'money'
Your credit score is an important number in your life as it can affect many financial aspects of your life. The three-digit number is a representation of your credit history, based on an analysis of your credit file, that helps a lender determine your credit worthiness. When an individual applies for a loan, such as a mortgage or car loan, the provider will use a credit score to help them decide whether to lend the money, the amount to lend and the interest rate.
An individual’s credit score is calculated by credit reporting agencies who collect financial and personal information and document it on a credit report. The information is then used to calculate your credit score. Areas agencies assess are;
- Your personal details; age location, etc.
- Types of credit providers previously used; bank, utility company, etc.
- The amount of credit borrowed.
- The number of credit applications and enquiries made.
- Any unpaid or overdue loans or credit.
- Any debt agreements or personal insolvency agreements relating to bankruptcy.
A credit score is rated on a five-point scale with the position of your credit score on the scale helping lenders work out how risky it is for them to lend to you. The scale goes excellent, very good, good, average and below average.
To prevent a negative credit score, individuals should try to spread applications over a larger amount of time; lower credit card limits; ensure their credit card is paid in full each month; and pay their rent, utilities and other loans on time.
When it comes to your money, whether it be loans, insurance, savings or superannuation, having a ‘set and forget’ attitude can be detrimental to your long term finances. Checking in on the different aspects that make up your finances every now and then to see if they need freshening up is a good way to ensure you are getting the most out of your money.
Since a person’s income and expenses will change over time, making sure your budget is up to date can help keep track of your spending and calculate how long it will take to reach your savings goal. This is also impacted more by day to day and surprise expenses you may incur so regular assessment will better your planning.
Spring is the perfect time to reconsider the type of savings product you currently have and whether the return you receive on your savings is at the best rate out there. For those with a term deposit that is about to mature, consider whether there is another savings account that pays higher interest or if another term deposit is a better option.
To get to know your superannuation better this Spring, find your latest super statement and check the following:
- If you have multiple super accounts: consolidating all of your super accounts to just one will save you fees and make it easier to keep track of.
- Investment options: consider the best investment option for each stage of life when choosing super investments. How close an individual is to retirement can affect how aggressive or conservative they want their investment strategy.
- Contributions: consider how much you are currently contributing to your super; the sooner you start contributing extra, the less you have to give up each week to make a difference in the long-term.
Maintaining healthy cash flow can be challenging; between ongoing expenses and bills, poor cash flow can severely impact your customers, staff and bottom line. Business owners need to understand the differences between short and long-term financing when developing a cash flow strategy.
There are various sources of financing available, with each being useful for different situations. Choosing the right source and mix is key for good cash flow, with financing options often being classified into two categories based on time period: short-term and long-term. To find the right plan for you, determine your needs and then match a financing option to meet those needs.
Short term financing, or working capital financing, looks at needs that arise in relation to financing current assets – for a period of less than one year. Working capital is the funds that are used in the day-to-day trading operations of a business. Short-term financing can help you to pay suppliers, increase inventory and cover expenses when you do not have sufficient cash on hand.
Long-term financing options can help you invest in overall improvements to your business, for a period of more than 5 years. Capital expenditures, such as upgrading equipment, buying additional vehicles and renovating are funded using long-term sources of finance.
Managing cash flow is critical to the success of a small business. While it is necessary to be profitable, your profit is a number that shows up on your accounts at the end of the year whereas your cash is the money you have in the bank. By incorporating the following tricks, you can help to maintain the flow of money coming in and keep the business running smoothly.
Prepare a cash flow projection:
There are always unforeseen challenges or changes in the marketplace. While you won’t always be able to predict or forecast these, you can gain a better grasp on industry trends and patterns. Drawing up a cash flow projection can help you plan the ups and downs of your spending. In your projection, be sure to include:
- Cash receipts, including income from sales and income from financing.
- Cash disbursements, including all expenses (cost of goods, operating expenses, loan payments, income tax payments, etc).
- Net cash flow — opening cash balance plus receipts, minus disbursements.
- Ending cash balance.
Generate new business:
The business is going well; you’re meeting your targets, money is coming in, and you’re happy. This is not a time to relax, it is a time to be seeking out and generating more business. Cash flow may keep your business alive, but sales are what keeps cash flow alive. Keep expanding and preparing your business to cater for growth. This will help prevent you from chasing your tail when times are tough.
Employee share schemes (ESS) provide employees with a financial share in the organisation that they work for. They can be offered by organisations as a way to grow their business by attracting, retaining and motivating their employees.
How they work:
ESS gives employees shares in the organisation they work for at a discounted price, and the opportunity to purchase shares in the future. The discount refers to the difference between the market value of the ESS interests, and the amount paid by the employee to acquire them. This discount forms part of an employee’s assessable income, and will need to be included in their tax return.
Employee share purchase plans offer eligible employees the chance to purchase shares from their employer, often through a loan. The shares can be paid through a salary sacrifice plan over a set period, or by using the dividends received on the shares. Employees who are on a higher income may be eligible to receive shares as a performance bonus or as a form of remuneration instead of receiving a higher salary.
There may be restrictions on when employees can buy, sell and access their shares through an organisation’s share scheme. For example, employees may have to get permission from the business before buying or selling their shares, or there could be an annual window during which shares can be bought or sold.
What to consider:
Employees should take time to research the organisation they are considering participating in an ESS with. This will help determine how well the scheme is doing, and whether the shares are likely to increase in value. To avoid losing a large part of your investment portfolio, consider purchasing shares that are part of a diversified investment plan.
Before entering into an employee share scheme, consider seeking professional financial advice that is specific to your circumstances.
Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance. By using ratio analysis methods, you can gain insight into a company’s liquidity, efficiency and profitability by comparing the information contained in its financial statements.
Solvency ratios measure the company’s capacity to fulfil long-term financial commitments. Debtor days is one of the key measures of this ratio analysis method. It shows the average number of days that a business takes to collect invoices from their customers. The longer it takes to collect, the greater the number of debtor days. When debtor days increase beyond normal trading terms, it indicates that the business is not collecting debts from customers as efficiently as it should be. The formula for working out debtor days is:
(Trade receivables ÷ Annual credit sales) x 365 days
Profitability ratios help measure and evaluate the ability of a company to generate income relative to revenue, balance sheet assets, operating costs and shareholders’ equity during a specific period of time. The net profit margin measures what percentage of each dollar earned by a business ends up as profit at the end of the year, the formula is:
Net income ÷ Total revenue = Net profit margin
When it comes to investing your money, there is the possibility that it may not perform as well as expected, possibly losing you some or all of the original investment amount. While no investment is free of risk, some carry more risk than others. These are a few strategies that can help minimise the risk of investments without sacrificing your returns, and not be left out of pocket in volatile and fluctuating markets.
Investment diversification involves buying asset classes or sectors that are not correlated. Diversified portfolios give you the advantage of being less exposed to particular economic events. It can be an effective way to limit your risk, as the fall in the value of one asset class may be offset by an increase in the value of another.
When buying growth investment assets, you may expect to see some short-term volatility. It would be helpful to separate your short-term and long-term goals and determine how much will be needed for each. Consider investing for the long term in growth assets, while setting aside funds for the short term in a cash investment or another similar defensive asset, ensuring short term funds are available and longer term growth investments are not affected.
Track your investments:
The balance of your assets may change as they gain or lose value, reducing the diversity of your portfolio. Tracking investments is useful in these circumstances as you may need to rebalance your portfolio. Doing this will make sure your investments still align with your strategy to mitigate risk.
Debt consolidation loans are a financial solution that may be suitable when you have multiple debts at once and are struggling to manage them all.
Debt consolidation is the process of bringing together all of your current outstanding debts into one single repayment. This is typically done by taking out a new personal loan to repay your existing debts and then paying this new loan back over a set term. While they may seem like an appealing idea, there are a number of potential negatives to consider as well as the benefits.
- Consolidating your debt into one single loan to repay can be easier to track and manage.
- Those taking out a debt consolidation loan may benefit from a lower interest rate compared to what they are currently paying. This means that over time, you can expect to save money.
- Without being mindful of your finances, the lower regular payments as a result of consolidating your debt may lead to you spending more overall. This creates the potential to accrue more debt and pay more in the long term.
- Failing to keep up to date with regular loan payments could end up affecting your credit score and put you in further financial hardship.
Before deciding to apply for a personal loan to consolidate your debt, take the time to consider all of the potential advantages and risks that are involved. Factor in your own circumstances and look for a loan that offers an interest rate and terms that will work for you. For more information, you may consider seeking professional financial advice.
Having a healthy supply of cash is vital for the survival of small businesses, as it is required to operate and enables you to pay workers, rent and other expenses. Unpaid invoices can lead to poor cash flow, a significant reason small businesses fail.
Late invoice payments can add to the strain of being restricted by limited resources. As a business owner, you should take the necessary steps to ensure prompt invoice payments and reduce your stress.
A structured collection process when it comes to chasing payments can provide a strong foundation to minimising losses as your business grows and can release thousands of dollars into your cash flow as a result of faster payments. By embedding certain practices into your day-to-day operations, the time dedicated to invoicing and chasing late payments is more efficient and effective.
Fast and correct invoicing is a great way to encourage faster payment. The earlier that you send your invoice will mean the client can make payments as soon as possible. Contacting clients after sending your bill allows issues to be addressed quickly. Checking if they have received your invoice and are happy with the services that have been provided is a good way to improve customer relationships.
Borrowing money to invest, also known as ‘gearing’, can be a risky business. While it can increase your returns when markets rise, losses can be extreme when markets fall. It is important to understand the risks involved when deciding whether borrowing to invest is right for you.
The main benefits of borrowing to invest are:
- It gives you more money to invest.
- If you are on a high marginal tax rate then there may be tax benefits as you are usually allowed a tax deduction for interest payments on the loan.
Some major risks of borrowing to invest are:
- The income that you receive from the investment may be lower than expected.
- Interest rates on the loan could rise.
- Income risk in circumstances where your income may stop, such as illness or redundancy.
It is vital to understand and have a plan in place to manage these risks. As borrowing to invest is a high-risk investment strategy best suited to experienced investors, you should seek further professional financial advice to make sure that this is a viable option for you.