Top 5 Financial Hacks for New Entrepreneurs and Start-ups

financial planning

As an entrepreneur, one is really focussed on the “idea”. However, success of a start up is 99% execution and 1% idea. Part of the execution is managing the company’s finances so that there is sufficient cash flows to manage expenses while revenue streams are still being built up. The ultimate goal of any new business or start-up is to generate a profit and that is possible only if prudent financial decisions are made. It is important for any business, especially start-ups, to know about their financial position, money management, and cash flow to be successful.

Starting a new business means making the right business plan with a clear mission, vision, and goals. The state of financial affairs of your business should be at the top of your priorities as it is where most businesses feel uncomfortable in the beginning. With the right approach and financial planning, you can avoid unforeseen business debt and common financial mistakes by utilizing capital, and other resources effectively.

When you are living your dream of becoming an entrepreneur by establishing your own business, it’s is essential to keep your expenses, investment, cash flow, and taxation in proper order. Here are a handful of financial hacks for new entrepreneurs that they can follow in their journey for optimal performance.

Establish financial goals and options

Start-ups should be clear about their financial goals as part of their business strategies. Any business needs to set its financial goals and break them down into short-term, mid-term, and long-term goals. It establishes a clear understanding of its financial situation after each term and helps in achieving targeted goals efficiently.

Entrepreneurs should also aware of their financial options such as investments, loans, assets, taxation, and repayment options for the smooth flow of business activities. They need to align all their business activities in accordance with financial goals and options to be successful.

Cash flow management is the key

The key to a successful business is the proper money management to avoid any shortage of money when required. Running out of money is the key reason why many businesses fail and it happens because of poor cash flow management. When you fail to manage your cash flow, you are not going anywhere near to success. You should be aware of where every single penny is coming from and where it is going. It helps you know your current cash available to make the right financial decisions within your budget.

Track and monitor all expenses

There will be expenses in all directions in various forms, and you need to maintain the books to understand your financial position. You can use online tools, accounting software or hire a full-time staff to handle your books and accounts to remain organized. It helps you with better cash flow management, taxation, and other financial decision with up-to-date information about your financial affairs.

Outsource when you can

You need to limit your fixed expenses within your budget in the beginning. You can adopt many strategies to keep your transactions in check and cut unnecessary business costs. Identify the business areas where you don’t need to assign full-time resources and staff for daily management. You can outsource some of your business processes to a third-party partner to save some money on wages, allowances, salaries, and taxes. Outsourcing when and where you can is a well-known and cost-effective business practice that many companies opt for to increase their profitability.

Calculate a break-even point

It is extremely important to know your break-even point on a monthly as well as an overall basis while running a business. It helps you shuffle things around depending on your financial positions to make the right decisions at the right time with the right strategic choices.

By incorporating these five financial hacks, an entrepreneur can follow a path to success with more confidence. Start-ups can grow and flourish with careful management of their financial positions, especially at the beginning of the business.

Why You Should Never Ever Only Pay The Minimum Payment

minimum credit card payment

Do you pay only the minimum payment due on your credit card bill? If yes, either change your strategy now or get ready to pay hundreds, if not thousands, more in the long run. We understand that you might find it more tempting to pay the minimum payment and feel financially secured. But this false sense of financial security that ‘your debts are paid each month’ can be extremely expensive.

Experts recommend that you should never ever make only the minimum payment on a credit card. Otherwise, you will eventually end up with a balance so high that you might find it extremely difficult to clear the balance even over several years, maybe even a decade, or more.

Today, we will help you understand why and how paying only the minimum payment can be a risky game for you. Besides, we will also cover what to do if you can’t pay the full amount due. To make things easy for you to understand, let’s start from the basics.

How is the minimum payment calculated?

The calculation of minimum payment varies from bank to bank. Typically, a floor limit is set, which is the lowest minimum payment you are required to pay to avoid late fees, and penalties.

Generally, in the UAE, the minimum amount due is calculated as 5% of your outstanding Credit Card Account balance every month-end.

What happens when I make only the minimum payment on credit card bill?

The concept of minimum payment may look lucrative, but it comes with a catch.

Let’s assume you have a balance of AED 10,000 and the Average Interest Rate on the card is 2.9 % per month – which equates to an Annual Percentage Rate (APR) of 40%.

Based on the 5% minimum payment rate, the minimum amount due would-be AED 500 – which is a much less amount than the balance. When you see it, you feel like you can afford it and decide to make the minimum payment only. As you pay off your debt and the card balance decrease, your minimum payment will continue to decrease, until it hits the minimum payment allowed by the card (which is usually AED 100 in the UAE).

But, what you might not realize is that you are leaving 95% of the debt each month unpaid.

If you keep using your card, the minimum amount will keep increasing each month. Since interest starts compounding on the unpaid balances, when you continue to make only minimum payments on a card regularly, your current balance will start to grow very quickly. Before you know it, you will be left with a debt that is about multiple times the original balance of AED 10,000.

While paying only the minimum amount keeps your credit score intact, overspending or not paying in full for long will leave you with unmanageable debt. When your credit card repayment ratio is not good, it can drop your score eventually.

What options do I have for the payment of the credit card bill?

In your credit card bill, there are generally three amounts you can opt to pay:

  • The statement balance – the total balance of your account for that billing cycle
  • The current balance – the total amount of your most recent bill along with recent charges (if any)
  • The minimum payment due – the smallest amount you have to pay to keep your account in good standing

Ideally, you should pay your statement balance in full each month to avoid high interest charges and debt.

What should I do if I struggle to pay my statement balance in full?

There may be times when you can make only the minimum payment. For those situations, you can pay the minimum – but don’t do it for the long-term. As soon as you have funds available, pay it in full.

If you can’t afford the full balance, you should try to pay more than the minimum to reduce the total amount to be paid and the time required to clear the balance.

However, if you are having trouble paying your balance in full regularly, you need to review your cash flow and spending habits to see where you can cut costs to pay the balance.

Besides, look for a credit card with 0% APR on new purchases or transfer your credit card balance to a new credit card offering no interest for one to two years. Remember, such schemes have time-limits. So, you won’t be able to enjoy these benefits for a lifetime.

Thus, use your credit cards responsibly and prepare yourself to pay balance in the full or at the very least – to pay more than the minimum.

What is Financial Planning and Its Importance?

Financial planning is usually referred to as money or wealth management through budgeting and other financial management practices. It is a step-by-step and planned approach to meet life goals, both short-term and long-term. It is the process of managing income, expenses, and investments through the administration of money flow. When you manage and control your money in a systematic manner, it helps you evaluate your current and future financial standing.

Financial management is like creating a road-map for your expenses, investments, and savings – both fixed and unexpected.  There is one factor that connects everything during your financial planning – that is money. To achieve any of your financial goals, you need to have enough money or wealth, especially when you need it the most. It is why wealth management is crucial to meet all your life’s goals.

When we talk about financial management, there are no specific rules or conditions. You don’t need to be a professional financial planner to know about the basics to control your money. It is all about setting smart goals, budgeting your expenses, investing in the right assets, and saving for retirement. You can follow the following rules for your financial management:

  • Define your financial goals
  • Maintain a personal balance sheet
  • Start with a budget
  • Regulate your expenses wisely
  • Select right asset allocation and investment strategy
  • Create a personal investment portfolio
  • Plan for retirement
  • Manage your debt wisely
  • Cover your risks with insurance policies
  • Planning your taxes
  • Keep a contingency reserve
  • Review your financial plans regularly

Importance of Financial Planning

There are numerous benefits of wealth management to control your finances in all forms. It is important for the following reasons:

Increase your savings

Saving is an important part of financial planning while regulating your incomes and expenses monthly as well as for the long-term. You can increase your savings by cutting costs on unnecessary bills and expenses as well as finding the right investment vehicles with high returns.

Wealth creation with the right investment plans

It helps you decide on the right investment strategy with the money available. You can allocate your investment on the right kinds of assets to maximize your returns to create a family wealth to pass on to your next generation.  Right kinds of assets vary from one individual to another. It depends on an individual’s risk appetite and investment goals.

Be prepared for emergencies

Financial planning in a systematic manner keeps you ready for emergencies. Creating an emergency fund is the key aspect of money management. It helps you during a family emergency or job loss situation. As a rule of thumb, one should at least have six months expenses as liquid cash to manage any unforeseen emergencies.

Plan for your retirement

Planning for your retirement is another basic consideration of financial planning. It ensures that you have the funds and saving to live a standard and quality life after you decide to retire from your work.

Keeps you out of debt

Financial planning is also about saving taxes, timely payment of credit bills, and regulating your expenses. It keeps keeps you out of debt through proper budgeting and money management.

Gives peace of mind

When you have enough funds in your hand to cover all your expenses, bills, and taxes, you don’t need to worry about anything for yourself and your family. It gives you peace of mind to live a happy and comfortable life.

If you don’t know how to begin with financial planning, then take advice from a reliable financial planner and consultant. It will help you achieve your financial and life goals with the right knowledge and approach.

Tips to Defeat Credit Card Debt

Credit card debt is your financial worst enemy and a great hurdle in keeping your monthly expenses within your budget. The best way to avoid credit card debt is to keep it from happening in the first place. But there are many expenses that you cannot afford with cash payment and require credit card payments in form of EMIs. It is where credit card debt starts accumulating, and if you don’t clear your credit card bills anytime soon, it can become your worst financial problem in the future.

Carrying a balance every month and paying monthly instalments to avoid cash shortage can result in credit card debt. It comes with a number of risks such as rotating charges, interest payments, poor budgeting, delayed financial goals, and bad credit score. Finding out the ways to get out of credit card debt is very challenging. It’s better to avoid in the first place by opting for some good financial habits to maintain a balance between your spending and payment each month.

If you are already into credit card debt, there are some simple ways that you can take in order to manage your expenses and monthly buying needs to keep things control. When you take control of your spending and payment, you can easily get out of the credit card debt without any financial hurdle.

Put your credit card down

When you are trying to get out of credit card debt, putting away your credit card for future transactions, is the first thing that you should try to do. Try to make upfront payments for short-term financial goals such as groceries, utility bills, and other regular monthly expenses. It will reduce the burden on your credit card and keep your balance at an achievable limit. It’s better not to use your credit cards for a while if things can be avoided.

Look out for lower interest rates

When you make an emergency purchase using your credit card, ask for the lower interest rates for the monthly payments. It will greatly reduce your credit card bills due to rotating charges and monthly interest rates.  Don’t hesitate to call your credit card company to negotiate your interest rates. It works if you are a long-term customer, who pays monthly payments on time. Also, pick for a shorter payment duration to avoid additional interest rates when making your purchase online using credit cards.

Stick to what you can afford

Having a credit card can be tempting sometimes when you see some exciting offers on products. But, do you really need them? Can you afford them with your current earning and spending limit? Try not to make unnecessary purchases that you can’t afford or don’t need. Have good buying habits in order to keep things in your control and to avoid any future debt because of the unnecessary card swipes.

Always pay on time

The best way to beat your credit card debt is to pay regularly and on time. Don’t miss a single payment cycle to avoid any delay charges or due payments. Keep track of your credit card spending and payment schedule can keep you out of debt. After missing a monthly payment, the next payment will be a total of two payments plus interest rates plus late fees. It can be hard to catch up with your next payment if you don’t pay on time.

In addition to the above ways, you can include these habits too in your journey to defeat credit card debt:

  • Avoid unnecessary balance transfer
  • Cut your expenses
  • Pay more than required
  • Try to pay the full balance each month
  • Avoid cash advances
  • Don’t lend out your credit card
  • Limit the number of credit cards

So, these are some common ways to avoid or beat credit card debt. With healthy buying habits and keeping to your credit card payment schedule, you can make a dent in your debt.

When Are You Truly Ready to Purchase a Home?

Buying a home is an exciting endeavor, but realizing this dream requires a long-term commitment. To avoid drowning in debts that you might be unable to repay, it is critical to assess if you are truly ready to purchase a home. For that, you need to ask the following questions to know your readiness as a home buyer. So, let’s get started.

Questions to Ask Before Buying a Home

What is the status of my credit score?

A high credit score can help you get a more ideal interest rate. If your credit score is low, take some time to improve it so that you can qualify for a better interest rate. Once your credit score is improved, you are more likely to enjoy a lower monthly mortgage payment.

How long have I been in my current job?

Though every job comes with some level of uncertainty, the years you have spent on the same (current) job reflect if your job is reliable enough to backup your homeownership decision. Since home loans are sanctioned for around 15 to 20 years (a maximum of 30 years), the assurance of regular income becomes a necessary parameter for home loan assessment.

Changing jobs frequently may result in a higher income but give a negative impression to lenders. Thus, if you are planning to buy a home in the near future, it is highly recommended to not change your job.

Am I going to get a raise in my current salary?

To ensure that you can make your ends meet, it is advised to not utilize more than 30% of your monthly income. You can increase the share up to 50% toward mortgage payment; however, in this case, you might need to live lean if your salary is low. If you are assured of a significant raise soon, you will have a better opportunity to make more funds available. The raise will help reduce your financial vulnerability.

Can I obtain financing from my financial institution?

Never apply for a home loan at multiple banks at the same time thinking that at least one of them will accept your application. Remember that if one bank rejects your application, it can impact your credit score. As a result, it will negatively influence the application processing at other banks.

So, before you try at other banks, inquire your bank first to know if they can help you obtain financing for a home purchase. If they inform you of any issue, get it rectified before applying for a home loan at the same or other banks.

Do I need to seek outside loan support?

See how much loan you can afford, and how much loan your bank is willing to provide. Now, check the difference between the amount you need to buy a home and the amount you will get through a home loan. See whether it is sufficient or you will need outside loan support, which could be anything, such as utilizing your fixed deposit or taking another debt from a non-financial institution.

What outstanding debts do I have in addition to my potential house payment?

If you already have other debts, such as car loans, personal loans, or outstanding credit card bills, you must repay them first. Otherwise, they will reduce the fund amount you will have for a monthly mortgage payment. Not having other outstanding debts will also help you cover additional expenses, such as property tax, homeowner’s insurance, maintenance, and so on.

Do I have emergency funds and savings for unexpected expenses?

Always expect the unexpected. Having extra savings and emergency funds means you are in a good position to buy a home. If not, plan for this in advance and work on putting sufficient amounts of funds for emergencies aside before you take a home loan.

It is highly recommended to finally get professional advice from a reputable consultant with rich experience and knowledge in this field to see if there are any additional costs or aspects you might have overlooked.