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High Debt Exposure? Here’s How To Fix It

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Everyone at one point or the other have found themselves in either small or big debts. It’s not uncommon.

Companies or business owners borrow constantly to  finance their business; students borrow to finance education; and people borrow when unforeseen expenses arise.

It becomes a burden when it piles up so much that it becomes hard to get out of, or to payback, leading to financial setback.

Call Your Creditors

The worst decision we can make when in debt is to hide.

The longer we do this, the more difficult it would be to resolve our issue. I think the first step we should take is to call our creditors to explain our present situation.

Creditors could be commercial or micro-finance banks, fellow business partners or even friends. They might be aggressive or furious, but they’ll be informed, at the very least.

  • Have a clearly stated payback plan before calling.
  • Do not make promises you cannot keep.

Following this step might result in the following:

  • Creditors might reduce the payment.
  • Might extend the period of payment
  • Might reduce the interest rate on the money borrowed.
  • Or charge debtor to court or jail.

This approach might not lead to a positive end result for everyone, but once in debt, we owe creditors a trail of information that assures them that they’ll get their money back.

Cut Spending And Make A Realistic Budget

A quick approach to getting out of debt is to cut our spending. This seems really hard but it’s inevitable.

A way to do this efficiently is to save, make a realistic budget weekly or monthly and stick to it.

Stick to it!

I am repeating this again because it is easy to prepare a realistic budget, but carrying it out and following it is the hardest part.

When doing this, we can take note of the following:

Review what you spend money on the most and try to cut down cost.

For example, I spend a lot on data subscription and I’m presently cutting it down.

Cut down wants (luxury items) and focus more on needs.

Allocate spending ratios to expenses e.g 15% to food, 7% to clothes, 20% to transport etc.

Make sure after preparation, you have enough left to pay installments of your loans/debt.
Doing all these, would help save towards paying back the debt.

This article originally appeared on Piggybank.ng. Follow them on Facebook , Twitter , and Instagram.

Personal Finance

Securing Credit? Importance Of A Personal Financial Statement

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If you, as an individual, are a salaried employee but now wish to start a business, then your personal financial statement will be the key to avail credit. You may not be entitled for a loan for business, as the eligibility criteria here underlines history and financial position of an existing business. Since, the business in question would be a start-up; you will have to depend on personal finances for the time being, as a means to fund the venture. It is however recommended to keep personal and business finances separate, in the long-run.

When providing monetary support to a new business, it is important for the fund-provider to understand your financial position, which is well-represented by your personal finance statement.

What Does a Personal Financial Statement Contain?

A personal financial statement reflects your financial health. It is a spreadsheet or a document that gives a breakdown of all assets, liabilities, and fiscal details.

  • This document also contains general information such as your name, address, etc.
  • The assets are detailed on the right side, while the liabilities are listed at the left side of the sheet.
  • Liabilities include credit card balance, a personal loan, mortgage, unpaid tax, and more.
  • Assets include amount of balance in bank accounts, trading accounts, retirement account balances, and similar information.
  • If you are married, then you can apply for a joint personal financial statement, which shows details of all debt incurred and owned assets, of both the involved persons.

What is excluded from a Personal Balance Sheet?

There are a few things, which personal financial statements do not show.

  • Business-related liabilities and assets do not surface in a personal financial statement.
  • This spreadsheet also excludes leases and rentals since the rented or leased assets are not under your ownership.
  • A personal balance sheet will exclude personal property such as household goods, furniture, and more, which cannot be sold off to repay a loan.
  • However, property that has significant value such as antiques, jewelry, etc, can be included, if the asset value of these items are verified for appraisal by a certified agency.

Analysis of Net Worth, Possibility of Availing Credit, and More

A personal financial statement thus basically shows your net worth, which is assets minus liabilities, and it holds a great value, when it comes to seeking loans.

  • Net worth translates as what you will have in cash if you sell off all the self-owned assets to repay debts.
  • If the financial statement shows debts as greater than assets, then your net worth will is a negative.
  • For instance, if the sum of your utility and credit bills, auto loan bills, mortgage bills, etc. sum up to be more than the cash of all the investments and real estate property you own, then your net worth is negative.
  • If the net worth shows as negative, you can file for bankruptcy protection to resolve some of the debts. It may prevent creditors from collecting outstanding debt by posing any financial threat or stress on you.
  • However, certain liabilities cannot be discharged, and these include alimony, taxes, child support, and more.

Thus, personal financial statements have a great impact, when it comes to securing funds to run a new business. The document allows banks/NBFCs to assess your financial situation so that they can take an informed credit decision. If your financial health is not up to the expectation, you may be given an option to provide a personal guarantee, pledge an asset, or co-apply for the loan.

How to Fund Your Start-up Business?

You can either apply for a property loan or a soft loan to arrange capital for the venture, or opt for a small cash loan or a short-term loan, until the business attains enough vintage and financial history, to shift to a business loan suited for only business purposes. Thus, by comparing personal financial statements over a time, you can track your financial health and monitor it closely to improve the same. You should keep a check on this document regularly, especially if you intend to avail credit for business needs.

What is a Business Financial Statement?

A financial statement of your company will list liabilities and assets specific to the business alone. It will depict the net worth of the company, and leave out your personal financial details. The financial statements of an organization, include income statements, profit and loss statements, proof of revenue generation over a specific time period, expenses and debts incurred, cash flow statements (indicated the amount of cash the business has), shareholder equity statements (indicate the performance of the company’s stock).

Thus, a personal and business finance statement are different from each other in lot many ways, though they serve the same purpose, which is to denote the financial position of an entity, be it an individual or a company. An organization’s financial statement comes in use when applying for a traditional business loan, which is the best way to finance your start-up initiative, after it attains at least 3-years vintage.

If you wish to secure a loan for your start-up business, do not hesitate to take support of your personal finance for the moment. And to avail monetary support via this route, you need to keep a regular check on your personal financial statement.

This article originally appeared on ValueWalk. Follow ValueWalk on Twitter, Instagram and Facebook.

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Personal Finance

Video: A “How To” On Being Financially Responsible

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Let’s start the new year right by following these steps to being financially responsible and clinching the formula to build wealth.
 
Some of the philosophies presented in this video come from Robert Kiyosaki, the author of Rich Dad Poor Dad Why do they not teach this in schools?

 

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Personal Finance

How To Invest Your Way To Your First $1M (In 8 Steps)

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While being a millionaire most certainly offers a sense of privilege and extravagance, it also provides comfort.

Despite the idea that many of life’s luxuries can cost you your bank (plus a large chunk of your future earnings), achieving comfortable wealth is possible—if you’ve got a solid investment plan you’ll follow religiously.

Here are eight investment strategies to work your way to your first million dollars.

1. Say No To Fees (Of Any Sort!)

Investing comes packed with hidden and some obvious fees – broker fees, distributor fees, exit and entry fees, maintenance fees, and a string of other service-based fees. If you can manage your own investments and money, you can save hundreds of thousands in fees over the lifetime of your investment.

2.  Don’t Try To Time The Market

This can be one of the biggest blunders one can make—simply because it’s impossible, speculative and you’re gambling with your savings. While there are indicators that show market trends, this does not promise that your investment will most certainly move up or down.

3. Think Long Term And Diversify

If you put all your investments into one asset class, your investment will tank the minute the asset class goes into free fall. How do you beat this? Plan and diversify your investment – it could be debt, treasury bills, equity, real estate, startups, business ideas – anything, as long as you think long-term. This can pay off in the long run.

4. Think Like An Owner

When you buy your stocks or make your investments, think and act like it’s yours – you’ll be doubly careful to make the right checks and invest smart. When you invest in solid, robust companies with this in mind, the returns would also be equally strong. Good companies can pay you high dividends that can up your total income.

5. Invest In Yourself First

Be it education or investing for your retirement, put yourself first and then try to budget for the other frills in life.

6. Borrow If You Can, Don’t Buy

With a growing shared economy, you now have plenty to choose from – co-working spaces, ride-hailing and ride-sharing services, shared rentals and accommodation, and the list goes on. Here’s where you can really cut costs – be it while running your business or as a regular looking to channel the savings elsewhere.

7. Set Goals (And Stick To Them)

Make sure you start saving as early as possible and invest it – even a dollar can compound over time. As time goes, set bigger goals and get excited about them! Once bonuses and income increases come your way, bump up your investments – it can soon touch a quarter of a million.

8. Max Out Early

Your 401K can be one of your biggest retirement funds and maxing out your annual contribution by the end of June can be a great way to boost your retirement savings. How does this help? It gives your money an additional six months to compound.

 

 

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