Archive for 'Money'
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.
There are a number of options when it comes to choosing an income investment scheme. Investments that generate regular income can be useful in a number of various situations, for example funding your retirement lifestyle. Options to consider include managed funds or exchange-traded funds (ETFs).
Managed funds are where your money is pooled together with other investors and then bought and sold by an investment manager via shares or other assets on your behalf. ETFs are a type of managed fund that can be bought and sold on a secondary market like a share.
- Pricing: When buying and selling managed funds, investors won’t know their exit price until the next day. A sale takes place either at the end-of-the-day price or on the net asset value of the assets. You could have to wait several days to receive your money from the sale.
- Risk: It is up to the individual fund manager to invest in particular stocks, allowing you to access a diversified portfolio made up of varying asset classes. This can reduce your level of risk by minimising the impact of poor performance by a particular industry or sector.
- Transparency: ETFs are typically more transparent than actively managed funds. An investment manager’s website can have its underlying investments readily able to be seen, where managed funds provide relatively little information about the holdings of the fund.
- Buying and selling: Arguably faster and more convenient than the trade of managed funds, ETFs are bought and sold like shares, meaning you will need a sharemarket account and a broker. One option could be online brokers, as there are many of them available and they offer lower rates. On the other hand, a managed fund is bought from the fund manager.
If you are in a position to invest, it can be a great venture to help grow your wealth as well as provide opportunities for others through your contributions.
Before investing though, you need to consider what is the best avenue as there are many aspects of an investment you will need to examine to determine if it is the right fit for you. On a personal level, you will need to make a financial plan, consider risks, establish a timeframe of when you can invest as well as decide how involved in the processes you would like to be. When deciding where to invest, you should consider the following:
Understand the business:
As an investor, you should understand the day to day workings of the business you are contributing to. This will help you when deciding if an investment is the right fit for you. Research not only the particular business or company you are investing in but the industry as a whole so you can properly assess suitability. Make sure there is a market and audience for your type of investment.
Investors are allowed to look at the aspects of businesses that not everyone else can. When your money is involved, you have a right to know many things such as how the company functions, what it earns and how they pay employees. You should also look into whether the company is growing, their tax rates, debts and any other expenses they might have.
The day to day operations is what will help your investment strive so the management of the company is something to look into. Management history is a good way to gauge consistency, effectiveness and overall satisfaction. There needs to be cohesion between shareholders and management. To ensure this, partner with a management team that you align with which will benefit everyone involved.
Personal loans have become a fast-growing financing option for consumers, with payday apps and websites gaining popularity. For aid between paychecks, payday loans can be very helpful for the pay cycle lull. Taking out a loan is not something to enter into lightly though, there are many variables that should go into your decision-making process. Here are a few pros and cons you should consider before taking out a payday loan
Payday loans are named as such because they are basically instant. Once applied, your loan is usually processed and paid out on the same day. This is very helpful if you are in need of money urgently between pay, like a fine or surprise bill for example. For this reason, the loan amounts can often be quite high. Like any other loan provider, the quicker you pay the amount back, the more likely you are to receive a higher loan the next time around. These services track your repayments and can increase funds based on your credit history. Application for payday loans is extremely easy as they are based online. The process is very quick and many payday loan services have app options so you can apply on the go.
Any loan you take out will affect your credit rating so it is important to really think about why you need the loan before applying. Frivolous loans can greatly harm your credit score which could make life difficult down the track. With the loan process on these sites, if you are unable to make a full repayment by the agreed deadline, further fees may be charged to you but will not be revealed until you are required to pay. These payday loans often have a high-interest rate due to their instant nature and repayment period.
Businesses need to access finance with ease in order to sustain and develop themselves. Is your current bank still cutting it? Here are some indicators and tips to effectively assess your business’ banking needs.
Assessing your needs:
Evaluating and reevaluating your business’ financial needs is the first step towards choosing the right institution for your business. While drawbacks on customer service, high bank fees, or an increase in interest rates are clear red flags, you can also consider if your bank supports the direction of your business as it grows. That is, how will the bank affect your business if you choose to operate online? How will your bank manage a larger line of credit in the future? Does your business benefit more with a personal relationship with a small bank or the efficiencies provided by a larger bank? Consulting a financial advisor and developing a relationship early on can reduce headaches later on.
Choosing the right bank:
After identifying your business’ needs and possible trajectory, identify the key features you are looking for in a bank and be sure to have questions ready before meeting with bankers to compare effectively. Again, consider if the bank is flexible enough to meet your needs, and reevaluate services you have been paying for previously but may no longer need. For example, would an online bank work for your business?
People and internal processes
Arguably one of the best forms of investment is in the employees you hire, and the talent, experiences and skills that come with them. Take the time to reflect the strengths and weaknesses of your business and where you can retain or invest in your people.
Consider investing in a way that would help you earn more income in the future. Just as you would consider investing in your team, consider investing in yourself and your career. Between taking online courses to skill up, learning and networking at conferences, earning a certification in your field, pursuing higher education, and becoming more enlightened through books, audiobooks, and podcasts, the opportunities are at your fingertips. How can you make yourself more valuable to your business?
A side hustle
Whether you’re not earning as much as you’d like at your day job, or if you’re looking to discover an untapped passion or skill, consider making more out of 2019 with a side hustle. Not only would a side hustle help you reach your financial goals, but in the age of the ‘Share Economy’, the opportunities are growing. Options include selling old items online, renting out a room on Airbnb, tutoring online, working odd jobs, starting and monetising a blog, or selling your technical services.
Credit cards are useful financial tools that can help you manage cash flow but can run you into debt if you are not careful. Before you swipe your first credit card consider the following do’s and don’ts, so you gain all the advantages without the headache of a tarnished credit rating.
There are several actions you can take that will help you manage your credit card. Follow these rules:
- Try to repay the whole amount owing by the due date to avoid interest mounting up
- Switch up your payment methods with debit cards to keep your credit owing manageable
- Be selective about the credit card you apply for
- Arrange your money so you can reap credit card benefits like frequent flyer points by paying on your credit card and then transfer the money across to your credit account
Credit cards can accumulate debt with ramifications for your credit score and loan applications down the track. Avoid these standard blunders, so you do not end up regretting your credit card:
- Do not pay the minimum repayment amount as you will incur interest which can become unmanageable if it compounds weekly or even daily
- Do not have multiple credit cards if you are new to credit as managing accounts and deadline dates can be difficult
- Do not max out your card
The expenses of running your office and paying for rent add up to a significant cost to your business. There are several key ways you should consider to reduce costs, without sacrificing conditions in your environment contributing to your employee’s productivity.
Consider the following tips to help you better your bottom line on your office space.
Get a second opinion
Another set of eyes and a fresh perspective will spot savings that may be hiding in plain sight. Get someone who has experience in running an office who will assist you by spending a day in an office and working out what is necessary and what can be culled.
Allow flexible working arrangements
Where it is possible and beneficial to both the employer and employee working from home is a great way to minimise the number of bodies in the office, and makes a smaller office space with lower rent a more viable option for your business.
Rent your office space on weekends
If you own your office space and want to find ways to finance your mortgage, consider renting out your office space when you are not using it. You could potentially rent it to organisations who run workshops or classes on weekends.
Negotiate a fixed fee
Certain office spaces will entice you with low rent options but your amenities costs like electricity, internet and water bills will be significantly higher. Including all the services that your landlord provides in and renting the actual office space in a fixed rate, will help you stay in control of your costs and avoid any nasty surprises when your bill rolls in for the month.
When it comes to saving money on anything from home loan interest rates to new appliances for your house, haggling is critical.
Master some of the haggling skills below to reap some saving rewards.
If your timing is not right many of your haggling skills will be wasted. Make sure you are bargaining when the salesperson has adequate time to consider your proposal or when the appropriate moment presents itself. For example, negotiating in a fixed term of your contract have low prospects of success in comparison to when your contract is up for renewal.
Compare to competitors
If you have done your research and know who the relevant competitors are, you are on track to achieve the best deal. Many business’ price match or seek to beat their competitor’s on value so by being educated, you may get the two business’ to drive the price down while they compete for your business.
Building a rapport with the salesperson is vital. Many forget that bargaining is a negotiation process and that coming in and demanding your price will not be effective. It is better to get the business’ representative onside so that they genuinely want to help you.
Talk to the right person
An employee higher up the corporate ladder is often the one who makes the calls. Cut out the middleman and speak to them if you can, as they are a more direct and efficient route to bringing in your purchase under budget.
Working capital is the money needed for day-to-day business operations and is often a measure of a business’s liquidity, efficiency and financial health.
To ensure your business has adequate working capital, the working capital cycle should be applied. The working capital cycle is the length of time from the purchase of inventory to the receipt of cash from customer sales.
The cycle comprises four elements: cash (funds available), creditors (accounts payable), inventory (stock on hand), and debtors (accounts receivable). Maintaining good cash flow requires control over each component. Ways to improve working capital:
To collect payments from debtors early, consider:
– establishing a credit policy
– invoicing early
– reducing payment terms
– stop supplying credit to debtors that do not pay
– following up on overdue accounts
– offering early settlement discounts
Inventory can tie up a large sum of your working capital; reducing inventory through the just-in-time model can increase efficiency and eliminate waste. The just-in-time inventory model is beneficial as it allows for quick changes to customer needs and frees up working capital to better meet financial obligations.
Managing cash outflows
Managing the money you owe to creditors is just as important as managing your accounts receivable.
To ensure your cash outflow meets your obligations:
– consider early payment discounts
– prioritise suppliers
– ensure the accuracy of invoices before making a payment
– only make payments when they are due