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Category Archives: Finance

Financial Literacy

If we go by the dictionary meaning, then financial literacy is “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” Now, let us talk in simple words. Personal financial literacy is more than just being able to balance a checkbook, compare prices or get a job. It also includes skills like long-term vision and planning for the future, and the discipline to use those skills every day. We all make great efforts to teach children to read and write, but we don’t give their financial literacy the same attention. As a result, few young people know how to manage their personal financial lives. This problem is very widespread. You will see most of the teens who do are unable to answer basic financial questions or handle simple tasks, like understanding an invoice. However, there have been some improvements made in the past few years where the school curriculums have added personal finance classes. Now, just as students learn math and English, they learn financial literacy because it is also a basic skill that young people need. Although research on the effectiveness of financial literacy courses is mixed, it doesn’t matter since we all know how important it is in practical life.

One another aspect of financial literacy in India is that it is beyond personal finance. The public is faced with nearly two decades of struggling global economies, unemployment and the collapse of numerous financial institutions. Very few families have not experienced the fear of uncertain personal finances and felt concern about being financially stable and secure in their future. Yet, within the same time frame, changes in legislation for investment, saving, retirement and capital lending have provided the opportunity for individuals to acquire wealth through entrepreneurship and investing. Therefore, the definition of financial literacy encompasses more than just personal finance. To be financially literate, an individual does need to be fluent in personal finance, but also in global economics, entrepreneurship and investing, all on a platform of real-time technology.

I am sure that above-mentioned details on financial literacy must have opened your eyes to a new world of finance. So, let us make a move towards it and try and increase our knowledge on all relevant aspects of finance. This will certainly be helpful in making our future financially safe and better. Let us pledge to become and make everyone else a financial literate!

Way to Get SME Finance

Many of us would love the idea of opening up our own business. With future prospects set, anyone body would love to handle their own company, be the boss and do business that will benefit them in the long run. But we all know that starting a business of your own is no cakewalk. Although there are many self-help books available today, they will not give you the knowledge or make you understand the current market. Business loans are a great way to kick-start that dream but you need to understand different aspects to make sure that you are not taking the wrong decision.

Even a layman will understand when the market position is low. At such times starting your company can prove to be very fatal for your financial state. It would be like investing all our hard earned and saved money into an open drain. Business loans will thus help you to solve the biggest problem, right here. Finance is the major concern for most people who want to start business. You need a certain amount of capital with you to go ahead and begin a business. While you may be having your own money, loans are always the best way to go forward.

Today, the market is very stable for you to get a good loan for your business. There are so many banks that offer loans at competitive rates. There are many lucrative offers that banks are giving on loans like these. Even car loan in the UAE and house loans have such intense competition that you have more options than ever. As a company there are many reasons why you may need a loan. You may want to secure financing to maintain business operations, invest in equipment, start a new branch, or expand your business.

Some financial providers specialize in business finance solutions – offering start-up business loans for new businesses. If you are into start-ups this may be your ticket to getting a good loan for your business. Such loans can help with cash flow, and help you when times are tough by offering access to short-term finance. There are other loans where you can get the loan and return it over a period of years. There is a fixed interest rate that you have to pay along with that. In fact SME finance is the largest sector in loans.

What is Trade Finance ?

Banks offer trade finance products to traders in order to facilitate the smooth transaction of trading, and such trade finance products can be bought by a trader for an agreed fee. What is trade finance? Trade finance denotes the items used to finance a trade deal, and the term encompasses both domestic and international trading deals. It takes a seller and buyer to enact a trade transaction involving goods and services and intermediaries like banks facilitate them by financing them.

In a trade transaction, a seller (or exporter) would expect the buyer or importer to pay for the goods that are to be shipped to them, in advance. Likewise, the importer (or buyer) would want to receive the entire consignment in full before paying for it. Here a stalemate or standoff can take place, but the situation is avoided if a bank steps in between and assures the seller of their payment by providing them with a letter of credit which will empower them to draw the payment by producing documents such as a bill of loading after they have dispatched the goods to the buyer’s destination. The seller (or exporter) can also get a loan or advance by producing the export contract to his bank.

Davenham Trade Finance UK uses several trade financing tools to facilitate their clients, and these include letters of credit, bank guarantees, discounting of bills, trade credit insurance, documentary collection, factoring or forfeiting. Some of these products are specially designed to get additional funding on top of traditional financing. In the chain of trading between two parties, there is always the element of risk, and it is only secure trade finance which can guarantee the secure movement of trading goods. Modern communication facilitates the tracking of consignments and ensures that the deals are concluded successfully.

Risk mitigation has evolved to a great extent giving birth to advanced finance models. These largely reduce the risk of paying the exporter in advance without upsetting the balance of the importer’s financial status. There is a huge demand for these advanced trade financing tools, as it allows flexible and voluminous trades to take place. Letters of credit and Bank guarantees are the two common trade financing models used by traders around the world. A trader can choose one of these two methods or others mentioned above, to conduct a trade transaction to import safely the goods they have ordered from a trader operating in a remote place.

Way to Become a Finance Director

The finance department is one of the most important departments in any type of organization. This department has to handle financial transactions of the firm and plan on investments and raising of funds for funding ongoing projects. As no project can be completed without money, the job of a finance director assumes further importance. Finance directors work in the areas like resource management, strategic planning, preparation of a financial budget for the financial year, supervising company’s financial performance and preparing financial reports for outside agencies like creditors and shareholders. Ensuring that the firm’s asset quality is high and debt levels are comfortable, are also some of the responsibilities of this job. Being the leading person in the department of finance, the finance director has to form teams, assign work and help in planning as and when they need. In short, the ultimate aim is to make sure that the firm achieves its financial goals or objectives in a planned way.

High School Preparation
Sincere efforts taken during this stage of one’s educational career pays off greatly. So, take special effort on subjects like economics, finance, mathematics, English and computer science while you are in high school. Get excellent grades so that you are not denied admission to top business schools to get deeper knowledge of finance.

Get Your Graduation Degree
Getting a graduation degree in accounting or finance is essential to pursue this profession. If you look at the track record of the Chief Financial Officers (CFO’s) of top companies, you will find that all of them have passed from top business schools. So, you need to try to do your MBA in accounting or finance from the top business schools in the US. As a student of finance, you should have ability in the following areas:

  • Financial management
  • Managerial economics
  • Management accounting
  • Costing and budgeting
  • Preparation and analysis of financial statements
  • Mergers and acquisitions
  • Fundraising through different routes

During the course of your study, you will be taught these subjects by expert faculties, hard work and passion for knowledge can lay a strong foundation for a successful career in finance.

Intern at a Major Finance Firm
During the business management course, students have to do their summer internships in financial and banking giants. Here, they get practical work experience and can apply their classroom knowledge. You will need to have good educational record to get internship at top firms in investment banking and asset management. A successful internship can help you get final placement in a top firm after you compete your course.

Become Auditor/Accountant/Finance Associate
After you complete your university education, you need to work as an auditor/accountant (junior level) initially for a few years. Then, with proven ability, you can become senior accountant or senior business analyst.

Become Assistant Finance Controller
Becoming assistant financial controller/assistant manager would be your next target after gaining experience in accountancy and auditing. By working at a managerial position, you will be able to sharpen your business skills and prepare yourself for future challenges. It would take around five years to become assistant finance controller.

Enter the Senior Management
To become a finance director, you first need to enter the senior management of the company. This is possible after gaining around ten years of experience in the field of finance. As a senior management professional, you will be involved in strategic planning, decision-making, chalking out expansion plans and fundraising. After spending some five to ten yeas in senior management position, you can then be eligible for this position.

Financial Management Analysis

This analysis deals with the calculated and predicted cash inflow and outgoings. The analysis is directed towards the study of the effect of existent funds on managerial objectives. It handles everything, right from procuring the funds to effective utilization of the same. Dedicated analysis handles procurement of funds from multiple sources, and since the funds are from different sources, they naturally need to be addressed, considering the difference with regards to the potential risk and control.

Tips

This management practice involves the optimum use of funds issued via equity, especially in the case of a business. This source is the best from the risk point of view since there is no involvement of any repayment. Management of business funds should ideally capitalize on equity capital, in spite of it being the most expensive source of funds. Furthermore, it should also involve calculation of risk, cost and control, and maintenance of the cost of funds at minimum. This is done with the intent of establishing a proper balance between the involved risk and optimized control.

Tapping Foreign Investments
In today’s competitive business world, mobilization of funds is very important. The implications play a very significant role in the overall growth of the venture. Financial management involves the raising of funds through the domestic and foreign market. When considering overseas solutions, direct and foreign institutional investments are major resources to tap, in order to raise the required funds. This whole mechanism designed for effective procurement of funds has to be periodically reviewed and modified, understanding the changing requirements of foreign investors.

Utilization of Funds
The ultimate goal cannot be addressed or achieved without first designing a strategy to ensure the proper utilization of funds. This helps to evade situations in which the funds remain idle or lack of profitable utilization of funds in hand. When availing of funds for the business, it is important to understand the involved cost and risk factors. Wastage of funds will only result in the business objectives not being met and ultimately, loss. The funds existent within the business should be critically reviewed from time to time and employed properly and profitably.

Scope and Extent
It has become imperative to address sound financial management in all types of organizations to guarantee efficient use of all resources. Research reveals that many firms liquidate because of mismanagement of funds and not, as it is commonly believed, because of obsolete technology or the lack of skilled labor. It is, in general, designed and customized according to different client needs to optimize output from the assessed fund input. In a situation where resources seem scarce and the demand for funds is high, its proper utilization is an absolute necessity.

The objectives of efficient financial management include maximization of profit. However, profit maximization is a limited objective and if it becomes the sole focus, then the approach only leads to more problems. This aspect must take into consideration, the relationship between risk and profit and work towards achieving a balance. The value of a business is analyzed on the evaluation of the stock market price. Thus, all in all, this financial practice should take into account, present and expected future income and the dividend policy of the firm to come up with a near-perfect understanding of the company’s progress potential.

Steps to Long-term Financial Planning

Step 1: Let us take the example of a coffee shop, where a financial planner has to find legitimate answers to 4 questions, namely:

  • Why should we produce a specific item on the menu card? (consider cost of production and sales price)
  • When should we produce such an item and for what time duration? (bear in mind, seasonal costs, inflation of raw material prices)
  • Where should we produce the item: right in the shop or some production center? (consider transport cost, nature of goods, and selling cost)
  • How should one produce the item, manually or mechanically? (consider equipment and personnel cost)

Step 2: The second step is to assess your business environment. In this step, surveying the competitors’ performance, pricing, and distribution is an absolute necessity. In such a scenario, you may also prepare a cost sheet of the financial features of production, namely the money that you would have to invest as a manufacturing cost, its sales cost, and the profit that it would yield. Logically, the sale price should be more than the cost price, and the return-over-asset ratio/return-over-investment ratio should be healthy. While finalizing these three figures, you will need to take into consideration three important aspects:

  • Average spending capacity of your customers
  • Your competitors’ quality, quantity, and price
  • Popularity of the product, potential market, customer retaining capacity of the product, etc.

Though the trend of such products is more experimental in nature, they might become full-time, public favorite products; hence, it is also important to make a financial provision to recover losses that arise in the experimental period, until the product establishes itself in the market.

Step 3: The third and fourth step are more analytical in nature and from the finance point of view, they are also quite expensive. The idea that you need to implement in the third step is allocation of resources in such a manner that you tend to make a genuine profit in sales during the long run. In this step, you will be using and analyzing cash flow statements on almost a daily basis. The key is to have uniform cash outflows for consecutive days/months/years. Cash outflow is typically all expenses and losses. Losses are quite uncontrollable, but expenses are surely controllable. Hence, search for raw material sources, manpower, and production processes that will help you to maintain uniform and low per-unit cost for the item/product. For example, have regular suppliers, who will supply at an agreed and uniform cost. This uniformity will eventually come in handy to curb and control unexpected losses, and will also help you to keep a good hold over the market.

The second part of the third step is making monetary provisions. This is absolutely essential due to the fact that no business is risk-free. Such provisions include advance to the raw material supplier, insurance, provisions for bad debts, extra services, etc.

Step 4: Retain, sustain, and entertain; this step is quite an advanced one, and typically includes many different aspects that aim at retaining the customers. The first important function of this step is to generate regular data and cash flow statements. With the help of these statements, you will realize whether that very item on the menu is proving to be profitable or not. At the same time, you also need to maintain a statement that records cash inflows and outflows over a longer period of time (in months or a quarter). Thus, you will realize what is profitable for your business and what your customers want.

The Important Money Management Skills

Money. That which makes the world go round. It all boils down to the money that we have at the end of the day. Money determines the way we live, what we do, and basically every other decision of our lives. Without money, we are basically nothing. And that, I know, is something that no one will want to go through. So it becomes imperative that we earn well. But earning well is not the end all of everything. It actually begins from there. Money which is earned, needs to be managed well, so that we continue to benefit from it for a long time. And therein comes the part where we need to learn some basic money management skills. Because without these, we will not be able to develop effective methods of money management.

Most of us do not have the knowledge of what some of the most simple and effective money management skills are. So to help you out, this article shall provide you with just that.

Money management skills are not difficult to learn once you get the hang of how to go about it. Given below is a step by step plan that you can follow in order to nurture some of these skills.

Take Stock
The first thing you need to do is calculate how much you are earning. Add in all the resources. Once you have this figure, calculate how much money you need to spend every month. To learn how much you spend every month, the best method is to write down each and everything that you spend for a couple of days. The amount will most generally exceed the amount that you had in mind―that’s because we don’t realize how much we end up spending on small things. Keep in mind that you need this spending figure to learn the basic skills. It is also important to note that the figures of two months will never be the same, there will be more expenditures incurred in a particular month and not so many in the next. But an average figure can be definitely arrived at.

Allot Amounts
Now that you know an average amount of the money that you need to spend for a month, it’ll be easier to allot amounts to different things. Make a list of all the things that you need to spend on―rent, tuition, bills (newspaper, Internet etc.) groceries, emergency (very important), and miscellaneous. You can make a long term-short term list as well. Like monthly/weekly/daily, and segregate the items accordingly. Now calculate the amount that you need for each and allot the money accordingly.

Many people use the envelope method for household items and it seems to work for them. For this, use different envelopes and mark them―for example ‘vegetables’, ‘toiletries’, ‘groceries’ etc, and at the beginning of the month fill the envelop with the amount that you need. Stick to that amount no matter what. When you put it down on paper like that, you are constantly reminded of it and the tendency to overspend is curbed.

Take Care of Debts
Never ever keep a debt. Pay a debt off as soon as you can, because if you keep on piling it, it’ll just keep getting bigger and bigger and cut into your regular saving plan. Find out how much you owe and what you need to pay off―that is the first step in managing your debt. Credit cards, surplus bills―everything needs to be paid off. Make a plan for the same. How? Along with the other envelopes, make another one for the debts so that you have a clear segregation made. It might be difficult in the beginning, but once you start physically putting in the money, you’ll deal with the problem head on and with continued efforts, the amount will be paid off.

Plan the Future
Now that the preliminary stage is taken care of, you’ll need to save for the future. The most important thing to do here is draw up a goal. What do you want to save for? Retirement? Children’s education? A house? Car? Or even small plans like a music system, a new phone etc. Calculate the amount you’ll need to save for it. This is your first step. The next steps will be how to get that money in a stipulated period of time.

Budget
Having a budget is really important. One way of budgeting is the envelope way, so that you don’t end up spending more when you have already allotted a fixed amount to yourself. The second method of making a budget, and this is somewhat of a conscious change in attitude, is that you get it in your head to budget things. Consciously decide that you want to budget. Do not spend recklessly. Other than that, planning for the future and drawing up plans of the things you need to save for will help you to budget well. This is because you’ll know what and how much you need to save up on to get that amount.

Invest
After paying all the bills, the surplus amount that lasts needs to be invested well. There is nothing worse than stagnant money. So consult a financial adviser or an investment adviser who will calculate how much you can afford to save per month, after deducting the expenditure and surplus. After this he will draw up a scheme that suits you best. It could be anything from a fixed deposit account to investing in mutual funds or buying property as assets.

Easy Saving Tips

Along with budgeting and drawing up plans, you can also consciously decide to save. Here are some money saving tips that you can use:

  • Buy things in wholesale.
  • Instead of buying books, join a library or start a club. Use this same formula for different things.
  • Car pool to work, that will save on money for gas AND is good for the environment.
  • Buy things on sale.
  • Go through your daily expenditure sheet, you will find that there are several things in there that you can easily give up. Like a very expensive brand of hair product.
  • Turn off the power when you don’t need it.

Earn Extra
It has been found that we never tap the full potential when it comes to expending our talents or finding other means of earning some extra money. This is one of the more indirect money management skills that we need to learn. Here are some of the easiest ways to make money―taking on freelancing jobs, giving tuition, making use of your hobbies and talents like singing or dancing (giving classes, singing in a club) or cooking (providing snacks for a establishment or making a fixed amount for a bakery). Other methods include, selling things for scrap, holding garage sales etc.

Becoming a Financial Planner

It is not necessary to have a bachelor’s degree to get into this profession. However, it definitely adds points to the work profile and earning potential. It would be beneficial to complete your graduation in the field of finance, economics, mathematics, statistics, business, or law. Studying these subjects would help in understanding issues and intricacies of financial management. Graduating as a Chartered Financial Analyst or a Chartered Financial Consultant would also help. You can also enroll into courses related to estate planning, investments, risk management, and taxes.

To practice as a professional financial adviser, you need to have certification. Those who aspire to be certified, should have a graduate degree, and most importantly, at least three years of experience in the field. The three years of working is when you would receive the actual training for your career. You would be dealing with the practical aspects of the theories you have studied. During this time you would learn how to how to deal with customers. Your main job would be to guide them in planning their finances according to their individual needs. This would also help you in building business relationships with the clients.

Once you complete the experience requirement, you would have to give an exam, that tests your skills. You would also have to undergo an ethical practice and background check. After you are certified, you can either work for an investment company or financial management company, or choose to set up your own business.

The salary varies greatly. Initially, when you start your career, you would enjoy a fixed salary, though it would not be a very huge amount. However, once you become a certified financial planner, your income would depend on commissions, or direct payment for the service you have provided to the client.

Careers in finance have become one of the most sought-after ones in the recent years. Along with educational qualifications and experience, you also need excellent communication skills for this job.

The Importance of Financial Planning

It is important to plan finances in order to reap long term benefits through the assets in hand. The investments that one makes are structured properly, and managed by professionals through financial planning. Every decision regarding our finances can be monitored if a proper plan is devised in advance. The following points explain why financial planning is important.

  1. Cash Flow: Financial planning helps in increasing cash flow as well as monitoring the spending pattern. The cash flow is increased by undertaking measures such as tax planning, prudent spending, and careful budgeting.
  2. Capital: A strong capital base can be built with the help of efficient financial planning. Thus, one can think about investments, and thereby improve his financial position.
  3. Income: It is possible to manage income effectively through planning. Managing income helps in segregating it into tax payments, other monthly expenditures, and savings.
  4. Family Security: Financial planning is necessary from the point of view of family security. The various policies available in the market serve the purpose of financially securing the family.
  5. Investment: A proper financial plan that considers the income and expenditure of a person, helps in choosing the right investment policy. It enables the person to reach the set goals.
  6. Standard of Living: The savings created by through planning, come to the rescue in difficult times. Death of the bread winner in a family affects the standard of living to a great extent. A proper financial plan acts as a guard in such situations, and enables the family to survive hard times.
  7. Financial Understanding: The financial planning process helps gain an understanding about the current financial position. Adjustments in an investment plan or evaluating a retirement scheme becomes easy for an individual with financial understanding.
  8. Assets: A nice ‘cushion’ in the form of assets is what many of us desire for. But many assets come with liabilities attached. Thus, it becomes important to determine the true value of an asset. The knowledge of settling or canceling the liabilities comes with the understanding of our finances. The overall process helps us build assets that don’t become a burden in the future.
  9. Savings: It is good to have investments with high liquidity. These investments, owing to their liquidity, can be utilized in times of emergency and for educational purposes.

Financial Planning for the Future

Well, there are many things one needs to consider while planning for the future in terms of finances. Given below are some of the factors you need to look into:

Current Economic Status: You must analyze your current economic status including your annual income. It will give you a direction towards financial planning for the future.

Expenses: You must also consider the expenses you make on a yearly basis. It is suggested to make a list of your ‘needs’ and ‘wants’ and determine how you decide your priorities and make expenditures accordingly.

Asset Analysis: Yes, this is one of the important aspects of financial planning. You must know and ascertain the number, or quality, of your assets before you start financial planning.

Liabilities: Liabilities are as good as expenses. So, you must pay attention regarding how you would deal with liabilities, and how you would manage and sustain them.

These were some of the crucial factors one has to consider when it comes to financial planning for the future. Now let’s take a look at some of the ways and ideas that can help you plan well for the future.

Financial Planning Ideas

Given below are some tips cum ideas that would answer how to plan financially for the future, take a look:

  • Saving is one of the most important steps to ensure a prosperous future, especially when you carry out financial planning for the future. The early you start saving the more time you give to your money to grow. It is never too late, so start saving as early as possible.
  • Once the significant savings are there in your account, there are many things you can do to invest these savings wisely. You can either buy gold, or invest money in assets that guarantee continuous income in the future as well. You can also think of investing money in stocks and bonds too, for long term benefits.
  • Learning to plan a budget for daily day-to-day expenses is a key to financial planning for the future. You must try to balance between the income and expenses every month so that you save a certain amount.
  • Along with a budget, one has to plan one’s lifestyle as it can have a major impact on your financial planning. You must learn to alter your lifestyle according to a stipulated amount every month and save the rest of the extra money for unexpected financial expenses in the future.
  • Insuring important assets is also an important aspect of financial planning. Health insurance and car insurance are some of the must have insurances for greater security in the future.
  • Another interesting way of investing in future is working after retirement. Yes, you can think of starting your own small business after retirement that guarantees income even after retirement. It can help you earn not only money but it would also help you kill the boredom and time, which many retirees are faced with.