When should you start thinking about investing YOUR money?
There is widespread sentiment in the “world of money” regarding the lack of savings culture amongst millennials. Phrases like “The YOLO generation” (YOLO being an acronym for the phrase, you only live once) and “Generation Rent” are being used to describe millennials relationship with THEIR money, emphasising a lack of prudence shown by millennials in the handling of THEIR monies.
Delving a little deeper into this issue, one needs to consider the economic factors facing millennials and what investment vehicles are not only available to millennials, but are also easily accessible.
The 2017 Old Mutual savings and investments report states that approximately 1 in 2 18 – 34 year olds live at home with their parents. Bond originator, BetterBond says it assisted almost 34,000 buyers to acquire new homes over the past 12 months, at an average price of R1.1 million. It said that the average age of these buyers was 37, and at an interest rate of 10.25%, the average monthly repayment on their loans is R8,631.
Coupled with the fact that you will likely not get 100% bond approval therefore some percentage of deposit down payment would be required, this illustrates how inaccessible purchasing your own home is to first time young professionals. It is no wonder words such as “Black Tax” or “Sandwich Generation” tend to be prominent in our society.
So what can you do with the little bit of disposable income you do have (if fortunate enough) to start an investment portfolio?
When asked where young working professionals would save a salary increase in the savings and investment monitor survey, next to saving it in a bank account (fixed deposit/money market), stokvels came up as the second most preferred method of saving disposable income.
Interestingly enough, increasing contributions to existing retirement funds or even starting up a new retirement fund scored lowest, even though 46% of youth (18 – 30) living in metros have some form of retirement fund in place (largely due to auto enrolment retirement schemes offered by many employers in the formal workplace).
One could argue that this shows lack of understanding and importance that millennials have for the retirement investment industry as they are more likely to save for short-term goals (5 – 10 years) than goals that are decades away.
So given this knowledge, what can the average South African do to build their balance sheet within the confinement of a savings behaviour which they understand and trust completely?
Perhaps the first step to understand and good news is that you do not have to start from scratch as a young millennial. With an existing cushion of R44billion circulating in the stokvel industry, one should look into their own family and immediate network to see if there are any stokvels they can join (see Stokvels 101: Is Group Saving For You for advise on performing an audit on a stovel before joining). Stokvels that have a bit of young blood injected in them tend to take on a little more risk and enjoy high value returns on investments made due to high monthly contributions and the capital already held.
Trust me, you would be surprised how many friends and family are keen for you to join their stokvel.
Buying actual property might be a challenge as a start for a new stokvel but nothing stops you from owning shares in a listed property shares. Barriers to entry here are low to non-existent plus as a group you don’t have to worry about municipality rates and taxes (if own property) or tenants headaches.
Related: Stokvels Enter the Digital Age
Just do your homework on the desired property shares and if needs be, nothing is wrong paying a little school fees to a wealth financial advisor. Given you are paying as a group rather as an individual, you will likely pay a fraction of a cost (the power of group buying).
If your balance sheet is already weighed more by debt than assets then you might want to consider a using your rotational pay-out stokvel to reduce if not clear your debt. This form of stokvel arguably is the oldest stokvel type but yet the most powerful.
A counter argument to such a stokvel would be why not put that money on your own for same period and reduce your debt once the saved amount reaches a required lumpsum. My response, peer pressure and accountability to others that stokvels bring can never be replaced. And perhaps this is the secret of building a positive balance sheet for yourself even with little disposable income. Stop seeing it as a one man/woman job but start seeing it as a collective effort.
The Next 5 Steps To Take After You’ve Been Denied A Small Business Loan
First things first: Ask the lender exactly why you were denied. Then, try, try again.
Let’s say you put together a business plan. You did the math to figure out exactly what you needed. You researched your small business loan options, diligently completed the paperwork and even did your little “good luck” dance as you clicked the “submit” button on your application. But then, your worst fears came true: You were denied that small business loan.
Let’s face it: There’s almost nothing quite as discouraging for an entrepreneur as seeing your business dreams halted by the decision of a single lender. You might feel rejected, have no idea what to do next and even start to question whether your grand business plans were ever meant to come true in the first place. But here’s the good news:
Of the many entrepreneurs who are denied a small business loan after their first application, most do go on successfully obtain financing with later applications. The key is to figure out why your application was denied, take steps to improve your credit and financial standing and choose the right loan product for your business – before trying again.
Don’t let a single denial hold you back from pursuing your small business goals! Here are the five steps you can take right now to ensure that your next business loan application results in a resounding yes.
Related: Is Venture Capital Right For You?
1. Request an explanation from the lender
Once a loan officer has given your application that red stamp of denial, you’re not likely to change his or her mind. Most lenders, however, will be willing to provide a letter of explanation detailing the reasons that your business loan application did not meet their requirements.
Understanding why you’ve been denied a small business loan will be critical as you seek to successfully re-apply in the future – and the answer might not be as obvious as you may think. A letter of explanation from your lender will allow you to address those specific concerns before seeking funding again in the future.
2. Check your business and personal credit reports
If you’ve ever bought a house or a car, or even applied for an apartment lease, you’re likely very familiar with your personal credit score and the impact it can have on your access to financing. But did you know that as a small business owner, that personal credit score also weighs heavily on your access to a small business loan?
That’s why, upon being denied a small business loan, one of your first steps should be to check your personal credit report and score for any discrepancies or forgotten financial woes that may have contributed to the denial.
Be sure to check your credit report with all three major reporting agencies – Experian, Equifax and TransUnion – as different bureaus may receive and report different information about your credit history. Should you find any errors on your credit report, reach out to the agency, in writing, to have the information corrected immediately. You don’t want an error to impact your ability to get a loan.
Along with your personal credit, your business also has its own credit report and score, which factors into lenders’ criteria. For most small businesses, however, the challenge of business-credit reporting most often stems from a lack of credit – particularly if your business is relatively new or you’ve never sought a loan before.
Work to build up your business credit by asking vendors, creditors or even the landlord of your retail property or office space to report your payment history to major business credit reporting services, including Experian, Dun & Bradstreet and Equifax.
3. Take steps to improve your business’s financial standing
While your business and personal credit scores will typically be the most influential factors in a lender’s decision process, the internal financials of your business – particularly the strength of your annual revenue, cash flow and business savings – will also be considered.
Taking an objective look at these factors from your lender’s point of view may help you to determine what steps you can take to either improve your financial standing or choose a loan product that will be a better fit.
The best way to do this? Take a look at what’s called your debt service coverage ratio, or DSCR, for short. This simple formula is the tool that lenders use to determine whether your business has the necessary cash flow to make your loan payments consistently and on time.
Don’t know what a DSCR is? Here’s the basic formula you’ll need to calculate your debt-service coverage ratio, including your anticipated loan as part of your calculations:
Annual net operating income + depreciation and other non-cash charges
Divided by interest + current maturities of long-term debt
A debt service of less than 1 indicates that your business’s debt will exceed available cash flow, meaning your loan will surely be denied. Most lenders look for a higher DSCR – at least 1.25 – with a ratio of 1.5 or even higher being ideal.
Even if you’ve been denied a small business loan because of a low DSCR, you may not be able to quickly increase revenue or reduce expenses in order to re-apply.
If this is the case, consider seeking a lower amount of funding – at least at the start – in order to increase your chance of approval until you can build up your business’s financial standing.
4. Consider alternative loan products
We can’t say this enough: A denial from one lender on one loan application is not a “no” for all time. Variations between lenders’ standards, the requirements different loan products have and the amount and terms of your financing can often mean that even without making major changes to your credit or your business finances, you may still be able to obtain a small business loan relatively quickly if you explore your options.
5. Apply carefully the second time
Beyond the challenges of bad credit or your choice of the wrong business-loan product, there are simple mistakes or oversights on the business loan application that could be the reason you were denied.
Did you have all of the right documents? Did you triple-check your identifying information and every other aspect of the application form for accuracy? Did your balance sheet and profit and loss statements match the business bank statements and tax documents that you provided?
This is the time to get a second set of eyes on everything that you submit so that you don’t risk a second round of frustration.
Being denied a small business loan is a reality that many business owners face, particularly after their first application – but it is by no means the end of your business financing journey.
Allow yourself to overcome your frustration; then follow these steps to dig right back in, solve what problems you can and find the funding your business needs.
This article was originally posted here on Entrepreneur.com.
Dealing With Debt As An Entrepreneur
Debt is all too common for business owners, but these experts can help you see the difference between good and bad debt and teach you how to keep yourself out of it.
The following excerpt is from Mark J. Kohler and Randall A. Luebke’s book The Business Owner’s Guide to Financial Freedom.
As an entrepreneur, it’s important to know the difference between good debt and bad debt. Good debt comes in the form of loans, a mortgage or lines of credit that can be used to the company’s benefit. I call this productive debt.
Bad debt, for our purposes, is debt you can’t leverage when growing your business. I refer to this as reductive debt. It’s money that isn’t working for you in any productive way. Typically, it’s used to buy things you can’t really afford; when that happens, it will never produce a good outcome.
I believe there are three primary reasons entrepreneurs get into bad debt:
1. The ups and downs of cash flow
When the cash is rolling in, there isn’t anything more exhilarating. However, business owners often underestimate the dramatic ups and downs and don’t foresee the months of terrible cash flow. We turn to credit cards to smooth out the ups and downs of cash flows so we can provide some type of economic balance in our personal life. We also presume we can easily pay off the credit card next month, but we don’t. Thus, the crisis begins.
2. Putting too much pressure on our business
3. Being overconfident
Getting out of bad or reductive debt
It’s absolutely critical to your long-term success to expunge all reductive or bad debt out of your life as quickly as possible. Implementing a debt snowball is critical. You‘ve probably heard about this type of strategy of spreadsheet or analysis that can fast-track you to getting out of debt quicker than you ever imagined.
The procedure behind the debt snowball is simple.
- Create a simple plan.
- Stick with it.
- Celebrate your success.
First determine how much of your monthly income can be consistently committed to eliminating reductive debt. You need to commit as much as possible. Seriously, the amount of money you’re going to commit to eliminating this debt has to stretch you.
Next, make a list of all your reductive debts in order, beginning with the largest debt at the top of the list and ending with the smallest debt at the bottom. Be sure to include the minimum payment next to each debt on your list.
Now, you’re ready to implement your plan! Simply take the amount of money you committed to your debt plan each month and add that extra cash to the payment of the smallest debt. Continue to make the minimum required payments to all your remaining payments. Soon, your smallest debt will be fully repaid. Now, the snowball increases in size as all the money you were sending to that small debt is now applied to the next larger debt along with its normal regularly required payment. You continue making these increased payments to that debt until it’s eliminated as well. Then you repeat this process over and over until all your debts are gone.
Staying out of debt
Obviously, the best way to get out of bad debt is to avoid getting into such debt in the first place.
If you want to get out of debt and stay out of debt, it necessitates planning in advance. Here are some core business practices that will help you stay out of debt as you grow and expand:
- Constantly minimising expenses. It’s OK to be frugal. Make sure to read The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley Ph.D. and William D. Danko Ph.D. (Taylor Trade Publishing, 2010..
- Hiring employees only when you can afford to do so and expanding your business when the sales come in the door — not in advance, hoping for the growth.
- Avoiding wasteful spending, and always consider the opportunity costs when making financial decisions.
- Not overextending yourself even with productive debt. Be cautious and try to grow on the profits of the business as much as possible.
- Having ample cash reserves to deal with emergencies and potential downturns in your business.
As an entrepreneur, when you find yourself in a situation where your debt is working against you and no longer working for you, then you need to make that debt disappear quickly. In my experience, the entrepreneurs who make it out of these situations will take quick action to cut their expenses and focus all resources on paying down the debt. Staying out of bad debt should not have to be reactionary; it should be part of your operating plan.
This article was originally posted here on Entrepreneur.com.
18 Ways I’ve Earned Rent Money When I Was Broke
Nothing motivates your hustle more than the prospect of an eviction notice.
It’s an interesting world out there. In the past five years I’ve gone from being worth millions to being broke to being worth a millions again. There’s been more than one month where I didn’t have enough money to pay rent. There are times you need money, and need it quick.
With a more connected world, there are more opportunities to make money doing micro jobs and taking advantage of constantly evolving opportunities. Plus, globalisation has opened the door to add value for people well outside of your immediate proximity.
Here are 18 quick ways I’ve made money to pay rent when money is tight:
1. Teach a skill that you’ve mastered to others
If you are a talented musician, athlete or you have other desired skills, you could get paid to teach others. You could either become a freelance teacher or look for a service that helps match you with clients. This is an opportunity to make some serious money, improve your teaching ability and help others. Do not underestimate all of the time you spent as a kid playing the piano or learning to do backflips.
I’ve been able to scrounge up $100 teaching math to neighbourhood kids. This could turn into a longer gig as well.
2. Drive for Uber and/or Lyft
There are a few prerequisites you have to meet to become a driver. Assuming you are 21+, have been driving for three years, have a clean record and a nice enough car, though, you can make serious money driving for Uber or Lyft. You can be a driver for both at the same time, and can drive at whatever hours you want.
It took me about a week to be all setup to drive. So it’s not an overnight money situation, but it’s a quick way to make some money for bills. Most of the time money is deposited very quickly, often the same day.
3. Put a room in your house on Airbnb
There are inconveniences that come with being an Airbnb host, but it is quite easy to do so. As long as you have a room to spare in your house, you can rent it out for extra money. Plus, it could give you an opportunity to meet and connect with interesting people.
It took about three weeks for me to get set-up, actually host guests and see money in my bank account. It can happen faster but that’s about the timeframe it took me.
4. Build a social media brand
Social media is quickly becoming the world’s most powerful platform for generating revenue and reaching an audience. While the ecosystem is becoming more and more competitive, there are a number of tools you can leverage to stand out.
I’ve personally used this Instagram automation service to help me accelerate my growth quickly and gain new followers. It is important to invest in generating high quality content such that you develop loyalty among your fans before you begin to monetise.
I now can earn a few hundred bucks quickly by pushing brands out online.
Pro tip: Make sure to always disclose with #ad in the message.
5. Go through your old things and sell them
You likely have books, clothes and other novelty items lying around that you no longer use. Spending a few days to go through those things and list them on Amazon, eBay or other sites to make some extra cash.
6. Pickup jobs on Fiverr
There are countless tasks on Fiverr that you can pick up. None by itself is a large amount of money but doing many tasks, though, can add up to a nice chunk of cash.
Money comes a few days after the task is completed. Most are cheaper tasks with demanding customers but can really start to add up. One month I paid all my bills from just working on Fiverr at $5 per gig that I did.
7. Dog walker/sitter
You can do this on a neighbourhood level or use a service to find clients. Walking or sitting for dogs tends is minimal effort for extra cash. Plus, if you like animals, what is better than getting paid to spend time with them?
I recommend starting small, say $1-2 per hour and working your way up once you have stable clients. It’s not much, but it can start to add up over time plus give you enough money to make bills.
8. Take advantage of credit card deals
There are countless credit card deals that are always popping up. Managing multiple cards is not the most fun, but it can yield you significant benefits. Be on the lookout for these deals. Some require that you spend a certain amount on the card within the first few months, and others have yearly fees. If the money that you are getting is greater than your costs, though, they can be a great use of time. Plus, if you are spending a certain amount of money anyway, you might as well do so on a card that will give you the maximum benefits in return.
9. Go thrift shopping and resell the best items
People turn in some awesome items to thrift stores. Going through the stores to find good deals is both fun and rewarding. You will likely find some items you can resell for a nice profit, and you might even find some cheap things to keep.
You can get paid to proofread articles, books, and journals today. You have to be meticulous and able to stare at a screen for a while, but it is nice and relaxing money in return. Sites like Freelancer can help you find clients to do the proofreading for.
11. Do surveys and studies
Services like Mechanical Turk will pay you to take surveys, and there are always listings to get paid for participating in studies. The work can be a bit monotonous, but it is typically a mindless way to make money.
12. Keep your email receipts
You can make money today simply by not deleting receipts that come via email. Earny automatically scans your email for old receipts and matches what you paid to current prices. When there is something being sold for less money, now, they will help you get the difference back.
13. Take advantage of your data
There are services that will give you money just for offering access to your data. For example, Nielsen gives money away just by letting them install a software on your computer that tracks your habits. It might feel scary to give others access to this data, but in many cases, it will have zero impact on you.
14. Make a bet to do something that will improve your life
If you have a goal you are trying to accomplish, make a bet with someone that you can do it.
This could be a great way to lose weight or pick up a new talent. It will incentivise you to actually do so, and you will be able to make some money for your efforts. Keep track of this in your calendar app.
15. Be a mystery shopper
You can get paid to pose as a regular customer for services like pizza delivery. Mystery shoppers are how companies test their customer service, and, in return, you can will get paid. You have to find the right deals, but doing so offers another effortless way to make money.
16. Become a search engine evaluator
You can make $12/hour evaluating search engine accuracy. Despite how good we think Google is, they still make mistakes and are willing to pay people to find them.
17. Sell your trash or recycling
There are countless companies that will pay for your empty cans and sometimes even your trash. You are going to be creating the waste anyways, so why not take advantage of it?
18. Approach companies for consulting services
If you have a skill that you think you can help businesses with, then approach them about it. Many companies, even successful ones, struggle in a variety of different areas. If you know what you are doing and can demonstrate that, you could make some serious money helping a company out. This could especially be the case for companies that do not have enough money to hire more people full time but have enough to pay a one-time fee for a project or service. Hot topics today include SEO, digital marketing, and design.
Ready to take your making money to the next level? Here is a quick self employed guide to help you get started.
This article was originally posted here on Entrepreneur.com.
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