How to Keep Track of Your Personal Finances

How to Keep Track of Your Personal Finances.

Staying on top of your personal finances can be challenging, tedious, and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult, but it does require a fair amount of time and discipline. Following either of the methods below will help you down the path of becoming better with your money.

Method 1 Keeping Track of Your Finances Manually.
1. Create a system. The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry. Also be sure to make your recording consistent. For example, you can record transactions as soon as they happen, every time you get home, or even once a week.
Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, health care, pets, personal expenses, and entertainment. These categories will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your categorizing is consistent between transactions.
2. Keep a notebook. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every dollar came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.
You can organize this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week.
3. Keep a checkbook. It may be considered old-fashioned, but recording your transactions in a checkbook is still a simple and reliable way of tracking your finances. The recording process involves simply writing down the amount of the transaction, writing a description of the transaction (a good place to write down the category), and then adding or subtracting the amount from account balance. For more information, and a look at balance a checkbook, see how to balance a checkbook
4. Use a computer spreadsheet. By using a simple spreadsheet on a program like Microsoft Excel, you can organize your expenses clearly and even create graphs easily to better understand your spending. They are many specific ways to do this, but a good start might be to create a personal budget. This would be done on a week or monthly basis, and include information like the amount, category, and date for each transaction.
To create a personal budget, start by listing your fixed expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.
5. Analyze your finances at the end of each month. Regardless of which method you choose to keep track of each transaction, you will need also need some way of combining and analyzing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.
Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you're spending more than you're making, you'll have to identify the source of your overspending and try to make a change for next month.
To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This will allows to you identify areas where you might be overspending.
You can also use this information to create a working budget for next month.

Method 2 Using a Personal Finance Application.
1. Select a personal finance app. There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate, and analyze your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.
You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts, and other sources. These often also track your bills and remind you to pay them. Award-winning examples include:
Mint, Personal Capital, Pocket Expense.
Alternately, you may want a simpler app that just keep track of your expenses and/or your income. These apps also connect to bank, but offer a simpler interface and fewer options than the more comprehensive apps. Good examples include:
Level Money, BillGuard.
Finally, if you want to use an app to track your finances, but don't feel comfortable handing over your financial information (bank passwords and account numbers), there are also apps that function as manual-input ledgers and analysis tools. Good examples include:
Mvelopes, You Need a Budget.
2. Input your information into the app. If the app you have chosen requires bank information, input your information and wait for the app to sync with your accounts. Alternately, input your own transaction information as you spend money and watch the app work its magic. The apps will guide you during this process.
3. Study the app's analysis. At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.

Tips.

This article is mainly about keeping track of your expenses and income. For more information about managing your finances and saving money, see how to save money and how to manage your finances.
Try to minimize your use of cash, as it tends to be more difficult to track than debit or credit card expenses.

June 04, 2020

How to Work out a Rental Yield

How to Work out a Rental Yield.

Rental yield, essentially, tells you how much you can expect to earn from an investment property that you're renting out. It's typically expressed as a percentage of the cost of the property. You can use this figure to determine if a property you're thinking about buying would be a good investment or to understand your return on investment (ROI) in a property you already own. This figure is also helpful if you're trying to decide if a "buy-to-let" mortgage is affordable for you. To work out the rental yield, you need to know the total costs of buying and owning the property as well as the amount of rent you'll collect.

Method 1 Totaling Property Costs.
1. Calculate your yearly mortgage payments. If you have a mortgage on the property, total the mortgage payments you would make over the course of a year, including interest, taxes, and any associated fees. These payments are part of your cost of owning the property.
Even if you don't have a mortgage, you're likely still responsible for property taxes on the property. Those would also be considered part of your costs of ownership.
If you don't own the property yet, use an estimate of mortgage payments or get an offer from a mortgage company for the property and use that number instead.
2. Get a quote for insurance. If you rent out the property, you'll typically need landlord insurance, which may have different rates than homeowner's insurance. If you don't already own the property, a quote from a reputable insurer will help you estimate this cost.
In addition to landlord's insurance, you may also want to consider other types of insurance to cover damage to the property.
Rent insurance may also be available to you, which provides you some money in the event your tenant breaks their lease or needs to be evicted for nonpayment of rent.
3. Include any management fees or other property expenses. If you've hired a management company to run the property on your behalf, their fees are considered part of your costs. You may also have other property expenses or fees, depending on where the property is located.
For example, if you only own the building but not the land, you may have to pay rent for the land that the property sits on.
If you have a unit in an apartment building or condominium complex, you may also have association fees to consider.
Tip: Include in this category expenses you might incur in the event you have to advertise for a tenant. Fees for listing the property or doing background checks on tenants are also costs of owning and renting the property.
4. Estimate costs for repairs and maintenance. Over the course of the year, your tenant may have things break that need to be repaired. While you can't necessarily predict all of these expenses, you can typically come up with a reasonable estimate based on the age of the property and its fixtures.
You also want to consider major repairs that may be necessary in the event of a natural disaster or other event. While your insurance may cover some of this expense, you'll likely still have to pay a deductible.

Method 2 Determining Gross Rental Yield.
1. Total your yearly rental income. Evaluate how much you charge in rent, then multiply that amount to get the total rent you'll collect each year. If you collect weekly rent, multiply the weekly rent amount by 52. For monthly rent, multiply by 12.
For example, if you rent the property out for $500 a week, you would have an annual rental income of $26,000.
2. Find the current value of the property. If you plan to purchase the property this year, the value of the property would be equal to your purchase price. However, if you already own the property, use the most recent appraisal to determine the current value.
If you're looking at a property for sale, use the asking price as the value of the property, even if you think the asking price is too high and plan to make a lower bid on it.
3. Divide the rental income by the value to find the gross rental yield. Once you have those two figures, complete the equation. Your result will be a decimal value. Multiply that number by 100 to get a percentage.
For example, if your yearly rental income is $26,000 and the property is valued at $360,000, you have a gross rental yield of 7.2%. Gross rental yield is considered ideal if it's somewhere between 7 and 9%, so the gross rental yield for that property is good. Any lower than that, and you likely wouldn't have the cash flow in the event emergency repairs were needed.
Warning: While gross rental yield is easy to calculate, it doesn't take a lot of other factors into account that can affect the investment value of a property, such as the property's location, age, or condition.

Method 3 Calculating Net Rental Yield.
1. Start with your total yearly rental income. Just as when working out gross rental yield, you'll need the total rent you collect from the property in a year. Multiply weekly rent by 52 and monthly rent by 12 to find the annual amount.
For example, if you rented a condominium for $2,000 a month, your annual rental income would be $24,000.
Tip: Net rental yield is typically calculated at the end of the year, looking back at real numbers. If the property was vacant for any period during the year, don't include the rent you would have received for that time in your yearly rental income total.
2. Subtract your annual expenses from the rental income. For net rental yield, you'll also take into account the other costs of owning the property. Include all fees, mortgage payments, interest, taxes, insurance premiums, and other costs associated with the property for the year. Typically these will be monthly expenses, so don't forget to multiply them by 12 to get the annual total.
For example, suppose your annual rental income was $24,000 and the condominium unit cost you $900 a month to maintain. Your annual cost to own the property would be $10,800. When you subtract $10,800 from $24,000, you get $13,200.
3. Divide the result by the current value of the property. The current value of the property is not your mortgage payment, which likely includes interest, taxes, and other fees. Instead, look at the value of the most recent appraisal of the property. That's the amount you could likely sell the property for.
For example, suppose the condominium you own is worth $250,000. You have an annual rental income of $24,000 for the property, which decreased to $13,200 by the costs of owning the property. When you divide $13,200 by $250,000, you get 0.0528.
4. Multiply by 100 to find your net rental yield. Net rental yield, like gross rental yield, is expressed as a percentage of the value of the property. To get that percentage, take the decimal you got when you divided the annual rental income less costs by the current value of the property and multiply it by 100.
To continue the example, if you had annual rental income less costs of $13,200 divided by $250,000, you would have a net rental yield of 5.28%. This is considered a relatively low rental yield, but might still be sustainable depending on the location of the property or your reasons for owning it.

Community Q&A.

Question : When you say an acceptable yield is 7-9%, are you referring to the gross yield or the net yield?
Answer : A yield of 7 to 9% is considered a good yield regardless of whether it is a gross yield or a net yield. The net yield simply gives you more information about the actual cost of owning and managing the property. A property with a gross yield of 7 to 9% may have a much lower net yield, for example, if the property needed extensive renovations or repairs. In that case, it likely wouldn't be a worthwhile investment. However, a lower net yield might be acceptable depending on your reasons for owning the property and its location. For example, you might be willing to take a lower yield in a high-growth area where the property was rapidly appreciating in value.
Question : Does net yield include interest-only costs to the bank?
Answer : Net yield includes all costs of owning the property. If you have a mortgage on the property and are paying interest on that mortgage, those costs would be subtracted from your annual rental income along with all the other costs.
Question : What is the acceptable yield?
Answer : It depends on your goals. I'd say an acceptable average would be a 7-9% yield, but you may be happy taking as low as 4% if it's just supporting a pension, or if the property is located in an up-and-coming area where the value will increase significantly over time.
Question : Is there a good online calculator that will do this for me?
Answer : Excel or Google Docs can do this for you. Both are very good at it and keep track of it too. They both allow you to manipulate data to extract even more information.

Tips.

Work out your rental yield at least once a year. It will change depending on operating expenses and changes in the value of your property. Keeping tabs on your rental yield will help you determine when it's best to sell the property.
There are many real estate and finance companies that offer free rental yield calculators online. Simply search for "rental yield calculator" followed by the name of your country. The country name is necessary to ensure the calculator uses the same currency as you.

Warnings.

If you're comparing investment properties to buy, look at the property's past appreciation and potential to appreciate in the future as well as its rental yield. A high rental yield doesn't necessarily equate to a good investment if the property is in an undesirable area.

June 04, 2020

How to Find Great Companies to Invest In

How to Find Great Companies to Invest In.

Smart investors put their money in reputable companies and investigate new companies thoroughly before committing their money. By carefully considering the qualities of the companies you invest in and incorporating your own knowledge of the market, you can make informed decisions in the hopes of choosing stocks of good quality and value. Be aware, however, this is no small task. Mutual fund companies and the like dedicate entire teams of experts whose full-time jobs are to research and understand how to invest in companies. Be sure you have the time and inclination to do this yourself, as well as the willingness to take the risks of doing so.

Method 1 Buying What You Know.
1. Stay within your circle of competence. If you have a field of expertise, you may be best able to identify quality within that area. Experience can provide you with the insights you need to make more informed choices. For example, if you work in retail, you may be better positioned to determine if you should invest in companies like Walmart, Target, or Best Buy, than you are in evaluating the latest bio-tech company.
Having competence in a certain area doesn't have to come from workplace experience. If you're a techie who spends his time buying and reading about the latest gadgets, you can draw on the information you obtain to help you make decisions on how to invest in the technology sector.
2. Focus on a few industries or markets. These can be either your direct area of competence or other areas that you are interested in investing in. The important thing is to realize that you can't keep track of everything going on in the global economy. Large financial institutions have whole departments for doing this so don't think you can do it on your own. Instead, narrow your focus to include only a few key industries or markets.
This doesn't mean you should avoid focusing on individual companies. You should always investigate every company you plan to invest in individually.
3. Stay up to date on news within that industry. Examples of quality sources for this are online finance websites like Bloomberg and the Wall Street Journal. They'll give you up-to-date information on many of the goings-on in various sectors of the economy and the World. Again, focus your energy on a few key areas and become knowledgeable on the happenings in them. Look for things like trends, mergers, acquisitions, relevant legislation changes, and any global events that may affect your chosen market.
4. Plan ahead. Identify a company that you think stands to benefit from some change or trend in the market. Look ahead for when this change will take place and move around your money to prepare to invest in the company. For example, if you think that a new product being released by your favorite tech company is going to be a huge success, you may choose to invest in the company before the rest of the world realizes this and drives up the stock price.

Method 2 Investing in Companies with Competitive Advantages.
1. Understand competitive advantages. There are some companies that manage to be consistently profitable and successful in their industry over many years. These companies have succeeded in building a "moat" around them to keep their competitors away. This distance from their competitors is also known as a competitive advantage. Competitive advantages allow these companies to make money and retain customers more easily than others. In turn, these companies are able to provide greater value and return to their shareholders.
An investment in one of these companies allows you to participate in their competitive advantage. While they may not grow as quickly as smaller companies, they often can be less likely to fail in economic downturns and can provide consistent growth throughout the years to come.
Blue-chip stocks are examples of large, successful companies with competitive advantages. These companies have provided consistent growth or dividends over many years and are listed on large stock indexes.
2. Invest in trusted brands. Think Harley Davidson, Coke, BMW. These are brand names etched in the public mind as the best in their class. These companies can raise their prices on the strength of their brands, resulting in deeper profits.These companies are so well-known and essential that they are unlikely to lose a significant amount of customers to competitors.
3. Find companies with high switching costs. When was the last time you switched banks? Or cell phone providers? These services retain customers because switching between them is more time-consuming than it's worth. Companies that have high switching costs can be expected to hold on to their customers longer than companies that don't.
4. Search for economies of scale. Companies that are able to make products and sell them at much lower prices than their competition automatically attract customers -- lots of them -- as long as quality is not compromised. In a crowded market, this is generally the result of economies of scale, a phenomenon where a large company is able to experience lower production costs solely due to its size. Walmart and and Dell have perfected this concept to a science.
5. Invest in legal monopolies. Some companies are granted legal (if temporary) monopolies by the government. Large pharmaceutical companies and manufacturing companies with patents are able to bring a truly unique product to market. Companies that own copyrights, drilling rights, mining rights, and other forms of protected property are often the sole producer or service provider in their area. Thus, these companies can raise prices without fear of losing customers, resulting in higher profits.
Be sure to check how long the company's patent or usage rights are in effect. Some of these are temporary and when they go, there's a chance the company's profit will go with them.
6. Look for opportunities for easy growth. Some companies are easily scalable. That is, their products or services with the potential to network or add more users over time. Adobe has become the de facto standard in publishing; Microsoft's Excel has done the same in spreadsheets. eBay is a great example of a user network. Each additional user to the network costs the company virtually nothing. The additional revenues that come in as the network expands go straight to the bottom line.
For a more current example, consider Netflix. As a streaming service, they make more money for each subscriber, even as their costs remain virtually the same. That way, as they gain more users they will continue to grow in profitability, assuming they don't choose to increase costs significantly.

Method 3 Evaluating Company Performance and Valuation.
1. Check the quality of management. How competent is the management running the company? More importantly, how focused are they toward the company, customers, investors, and employees? In this age of rampant corporate greed, it's always a great idea to research the management of any company you're thinking of investing in. Newspaper and magazine articles are good places to get this information.
This doesn't just mean that management has provided good financial results recently. Rather, look for indications of other important qualities like responsiveness, adaptability, capacity for innovation, and organizational ability.
2. Watch for management changes. A good leader can successfully turn around a company that many consider to be a lost cause. Watch the news and financial reports for changes in management positions, especially CEOs. If you believe in the new CEO of a company, based on your research, you may choose to invest in that company. Here, you're essentially putting your faith in the person, not the company.
3. Avoid overvalued stocks. Even a great company can be overvalued. Learn to interpret financial statements and pick stocks with fundamental analysis to find companies the market has overvalued. Know that these companies may be some of the most buzzed-about and invested in companies around, but they are still overvalued and may experience drastic declines in price once their day in the spotlight is over.
One way to determine if a stock is overpriced is to examine its price-earnings-ratio. The price to earnings ratio can usually be found in the company's stock summary on financial websites. Generally, PE ratios are between 20-25, but this varies by industry.
To evaluate a company's PE ratio, search online for the average PE ratio in the company's industry. If the P/E ratio is over the industry average, the company could be overpriced in view of its earnings.
4. Buy undervalued stocks. Undervalued stocks are those that are trading at a lower value than their financial information would indicate. These may be companies that have only started to do well recently. In these cases, the market has not yet caught up with their newfound success. To identify stocks with room to grow in value, you can also use the price-earnings ratio mentioned above and look for companies with low PE ratios compared to the industry average.
You can also look for companies with a price-to-book-value of less than 2. The price-to-book ratio is the price of the company divided by the total value of its assets minus its liabilities and intangible assets. A low ratio may indicate that the company is relatively cheap.

FAQ.

Question : How can I know a company's management?
Answer : A company's stock prospectus will list its management personnel. For suggestions on researching company management, go here: Investopedia.com/articles/02/062602.asp.

Tips.
Start thinking about everyday companies in terms of this new framework.
Learn the basics of reading financial statements. Check the profitability of companies you're interested in. Check their debt position. See if they have been growing steadily.
Visit the company’s website and other financial websites that will give you insight into the stock.
While it may be advantageous to invest in companies you know, do not limit yourself to just one or two sectors of the economy. Try to research companies in a variety of sectors. Doing so further diversifies your portfolio to better insulate it from a downturn in a single sector or company.

Warnings.
Be aware of stock tips: Whether they come from someone you see on TV or someone you meet in person, these are more often not well-researched or are even based on someone's grandiose theory about getting rich quick. They may also be provided by salesmen paid to inflate a stock's price to allow a company to raise as much capital as possible.
Jumping into buying stocks in a company without doing thorough research can be a quick way to lose your money.
Investing always carries risk. Even if you do everything right, there's no guarantee that you'll make money.

April 07, 2020

How to Keep Track of Your Personal Finances

How to Keep Track of Your Personal Finances.

Staying on top of your personal finances can be challenging, tedious, and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult, but it does require a fair amount of time and discipline. Following either of the methods below will help you down the path of becoming better with your money.



Method 1 Keeping Track of Your Finances Manually.

1. Create a system. The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry. Also be sure to make your recording consistent. For example, you can record transactions as soon as they happen, every time you get home, or even once a week.

Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, health care, pets, personal expenses, and entertainment. These categories will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your categorizing is consistent between transactions.

2. Keep a notebook. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every dollar came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.

You can organize this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week.

3. Keep a checkbook. It may be considered old-fashioned, but recording your transactions in a checkbook is still a simple and reliable way of tracking your finances. The recording process involves simply writing down the amount of the transaction, writing a description of the transaction (a good place to write down the category), and then adding or subtracting the amount from account balance. For more information, and a look at balance a checkbook, see how to balance a checkbook

4. Use a computer spreadsheet. By using a simple spreadsheet on a program like Microsoft Excel, you can organize your expenses clearly and even create graphs easily to better understand your spending. They are many specific ways to do this, but a good start might be to create a personal budget. This would be done on a week or monthly basis, and include information like the amount, category, and date for each transaction.

To create a personal budget, start by listing your fixed expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.

5. Analyze your finances at the end of each month. Regardless of which method you choose to keep track of each transaction, you will need also need some way of combining and analyzing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.

Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you're spending more than you're making, you'll have to identify the source of your overspending and try to make a change for next month.

To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This will allows to you identify areas where you might be overspending.

You can also use this information to create a working budget for next month.



Method  2 Using a Personal Finance Application.

1. Select a personal finance app. There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate, and analyze your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.

You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts, and other sources. These often also track your bills and remind you to pay them. Award-winning examples include:

Mint, Personal Capital, Pocket Expense.

Alternately, you may want a simpler app that just keep track of your expenses and/or your income. These apps also connect to bank, but offer a simpler interface and fewer options than the more comprehensive apps. Good examples include:

Level Money, BillGuard,

Finally, if you want to use an app to track your finances, but don't feel comfortable handing over your financial information (bank passwords and account numbers), there are also apps that function as manual-input ledgers and analysis tools. Good examples include:

Mvelopes, You Need a Budget.

2. Input your information into the app. If the app you have chosen requires bank information, input your information and wait for the app to sync with your accounts. Alternately, input your own transaction information as you spend money and watch the app work its magic. The apps will guide you during this process.

3. Study the app's analysis. At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.



Tips.

This article is mainly about keeping track of your expenses and income. For more information about managing your finances and saving money, see how to save money and how to manage your finances.

Try to minimize your use of cash, as it tends to be more difficult to track than debit or credit card expenses

February 10, 2020

how to keep track of your personal finances

How to Keep Track of Your Personal Finances.

Staying on top of your personal finances can be challenging, tedious, and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult, but it does require a fair amount of time and discipline. Following either of the methods below will help you down the path of becoming better with your money.



Method 1 Keeping Track of Your Finances Manually.

1. Create a system. The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry. Also be sure to make your recording consistent. For example, you can record transactions as soon as they happen, every time you get home, or even once a week.

Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, health care, pets, personal expenses, and entertainment. These categories will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your categorizing is consistent between transactions.

2. Keep a notebook. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every dollar came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.

You can organize this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week.

3. Keep a checkbook. It may be considered old-fashioned, but recording your transactions in a checkbook is still a simple and reliable way of tracking your finances. The recording process involves simply writing down the amount of the transaction, writing a description of the transaction (a good place to write down the category), and then adding or subtracting the amount from account balance. For more information, and a look at balance a checkbook, see how to balance a checkbook

4. Use a computer spreadsheet. By using a simple spreadsheet on a program like Microsoft Excel, you can organize your expenses clearly and even create graphs easily to better understand your spending. They are many specific ways to do this, but a good start might be to create a personal budget. This would be done on a week or monthly basis, and include information like the amount, category, and date for each transaction.

To create a personal budget, start by listing your fixed expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.

5. Analyze your finances at the end of each month. Regardless of which method you choose to keep track of each transaction, you will need also need some way of combining and analyzing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.

Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you're spending more than you're making, you'll have to identify the source of your overspending and try to make a change for next month.

To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This will allows to you identify areas where you might be overspending.

You can also use this information to create a working budget for next month.



Method  2 Using a Personal Finance Application.

1. Select a personal finance app. There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate, and analyze your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.

You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts, and other sources. These often also track your bills and remind you to pay them. Award-winning examples include:

Mint, Personal Capital, Pocket Expense.

Alternately, you may want a simpler app that just keep track of your expenses and/or your income. These apps also connect to bank, but offer a simpler interface and fewer options than the more comprehensive apps. Good examples include:

Level Money, BillGuard,

Finally, if you want to use an app to track your finances, but don't feel comfortable handing over your financial information (bank passwords and account numbers), there are also apps that function as manual-input ledgers and analysis tools. Good examples include:

Mvelopes, You Need a Budget.

2. Input your information into the app. If the app you have chosen requires bank information, input your information and wait for the app to sync with your accounts. Alternately, input your own transaction information as you spend money and watch the app work its magic. The apps will guide you during this process.

3. Study the app's analysis. At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.



Tips.

This article is mainly about keeping track of your expenses and income. For more information about managing your finances and saving money, see how to save money and how to manage your finances.

Try to minimize your use of cash, as it tends to be more difficult to track than debit or credit card expenses

February 09, 2020

How to Keep Track of Your Personal Finances

How to Keep Track of Your Personal Finances.

Staying on top of your personal finances can be challenging, tedious, and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult, but it does require a fair amount of time and discipline. Following either of the methods below will help you down the path of becoming better with your money.

Method 1 Keeping Track of Your Finances Manually.

1. Create a system. The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry. Also be sure to make your recording consistent. For example, you can record transactions as soon as they happen, every time you get home, or even once a week.

Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, health care, pets, personal expenses, and entertainment. These categories will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your categorizing is consistent between transactions.

2. Keep a notebook. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every dollar came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.

You can organize this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week.

3. Keep a checkbook. It may be considered old-fashioned, but recording your transactions in a checkbook is still a simple and reliable way of tracking your finances. The recording process involves simply writing down the amount of the transaction, writing a description of the transaction (a good place to write down the category), and then adding or subtracting the amount from account balance. For more information, and a look at balance a checkbook, see how to balance a checkbook

4. Use a computer spreadsheet. By using a simple spreadsheet on a program like Microsoft Excel, you can organize your expenses clearly and even create graphs easily to better understand your spending. They are many specific ways to do this, but a good start might be to create a personal budget. This would be done on a week or monthly basis, and include information like the amount, category, and date for each transaction.

To create a personal budget, start by listing your fixed expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.

5. Analyze your finances at the end of each month. Regardless of which method you choose to keep track of each transaction, you will need also need some way of combining and analyzing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.

Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you're spending more than you're making, you'll have to identify the source of your overspending and try to make a change for next month.

To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This will allows to you identify areas where you might be overspending.

You can also use this information to create a working budget for next month.

Method 2 Using a Personal Finance Application.

1. Select a personal finance app. There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate, and analyze your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.

You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts, and other sources. These often also track your bills and remind you to pay them. Award-winning examples include:

Mint, Personal Capital, Pocket Expense.

Alternately, you may want a simpler app that just keep track of your expenses and/or your income. These apps also connect to bank, but offer a simpler interface and fewer options than the more comprehensive apps. Good examples include:

Level Money, BillGuard.

Finally, if you want to use an app to track your finances, but don't feel comfortable handing over your financial information (bank passwords and account numbers), there are also apps that function as manual-input ledgers and analysis tools. Good examples include: Mvelopes, You Need a Budget.

2. Input your information into the app. If the app you have chosen requires bank information, input your information and wait for the app to sync with your accounts. Alternately, input your own transaction information as you spend money and watch the app work its magic. The apps will guide you during this process.

3. Study the app's analysis. At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.

Tips.

This article is mainly about keeping track of your expenses and income. For more information about managing your finances and saving money, see how to save money and how to manage your finances.

Try to minimize your use of cash, as it tends to be more difficult to track than debit or credit card expenses.

January 14, 2020

how to keep track of your personal finances

How to Keep Track of Your Personal Finances.

Staying on top of your personal finances can be challenging, tedious, and even discouraging, but for most people this process is a necessary evil. Spending more than you earn is a sure way to bury yourself in debt, and not being careful about precisely where your money is going can leave you struggling to pay for necessities like groceries. Fortunately, learning how to keep track of your personal finances is not difficult, but it does require a fair amount of time and discipline. Following either of the methods below will help you down the path of becoming better with your money.

Method 1 Keeping Track of Your Finances Manually.

1. Create a system. The most important part of keeping track of your finances is consistency. Regardless of which way you choose to log your transactions, you have to be able to refer back to them easily and reliably. Be sure to include important information like the date, amount spent or gained, and expense category with each entry. Also be sure to make your recording consistent. For example, you can record transactions as soon as they happen, every time you get home, or even once a week.

Expense categories are an easy way to figure out what you spend the most money on. These categories may include things like housing, utilities, household expenses, groceries, health care, pets, personal expenses, and entertainment. These categories will of course vary from person to person and you can be as specific or general as you want with your categories. For example, you may simply want to record expenses as either need or wants. The important thing is that your categorizing is consistent between transactions.

2. Keep a notebook. The absolute simplest way of tracking your finances is to write a record of each transaction in a notebook. By always carrying this notebook, you are able to know exactly where every dollar came from and went. At the end of each period (week or month), you can also transfer the information to a computer spreadsheet so that it is more accessible.

You can organize this notebook in several different ways. For simplicity, you may simply choose to use the notebook for spending. Alternately, you can treat it more like a logbook and record both your income and your expenses and how they affect the balance of your checking account. Some people choose to use a notebook to track cash expenses only, combining it with debit and credit card expenses at the end of each month or week.

3. Keep a checkbook. It may be considered old-fashioned, but recording your transactions in a checkbook is still a simple and reliable way of tracking your finances. The recording process involves simply writing down the amount of the transaction, writing a description of the transaction (a good place to write down the category), and then adding or subtracting the amount from account balance. For more information, and a look at balance a checkbook, see how to balance a checkbook

4. Use a computer spreadsheet. By using a simple spreadsheet on a program like Microsoft Excel, you can organize your expenses clearly and even create graphs easily to better understand your spending. They are many specific ways to do this, but a good start might be to create a personal budget. This would be done on a week or monthly basis, and include information like the amount, category, and date for each transaction.

To create a personal budget, start by listing your fixed expenses each month (like rent and utilities) as an expense on the first day of each month, along with your expected income for that month. You can then subtract other expenses or add other incomes as necessary throughout the week or month.

5. Analyze your finances at the end of each month. Regardless of which method you choose to keep track of each transaction, you will need also need some way of combining and analyzing your spending at the end of each month. This will allow you to see where your money is going and allow you to make adjustments for next month if needed.

Start by totaling your expenses and compare the sum to your income for the month. Obviously, if you're spending more than you're making, you'll have to identify the source of your overspending and try to make a change for next month.

To identify where your money is going, you can try totaling your spending by category. That is, you should combine the totals spent in each expense category and compare them either to each other or to your total expenditures. Specifically, you can divide the total of each category by the sum total of all of your expenses for the month to get the percentage of total expenses accounted for by that category. This will allows to you identify areas where you might be overspending.

You can also use this information to create a working budget for next month.

Method 2 Using a Personal Finance Application.

1. Select a personal finance app. There are a multitude of personal-finance apps available both for mobile phones and web browsers that offer services to track, tabulate, and analyze your expenses. These apps also offer a range of comprehensiveness, from simply acting as a budget-creation tool to displaying all your assets in one place. In choosing one, keep in mind your financial goals and ability to commit to using the app.

You may want to choose a comprehensive app that pulls in all of your financial information from bank accounts, retirement accounts, and other sources. These often also track your bills and remind you to pay them. Award-winning examples include:

Mint, Personal Capital, Pocket Expense.

Alternately, you may want a simpler app that just keep track of your expenses and/or your income. These apps also connect to bank, but offer a simpler interface and fewer options than the more comprehensive apps. Good examples include:

Level Money, BillGuard.

Finally, if you want to use an app to track your finances, but don't feel comfortable handing over your financial information (bank passwords and account numbers), there are also apps that function as manual-input ledgers and analysis tools. Good examples include: Mvelopes, You Need a Budget.

2. Input your information into the app. If the app you have chosen requires bank information, input your information and wait for the app to sync with your accounts. Alternately, input your own transaction information as you spend money and watch the app work its magic. The apps will guide you during this process.

3. Study the app's analysis. At regular intervals, the apps will supply you with analyses of your spending habits. Be sure to actually read these reports and think about adjusting your spending habits if necessary. Some apps will provide guidance on how to save money in certain areas.

Tips.

This article is mainly about keeping track of your expenses and income. For more information about managing your finances and saving money, see how to save money and how to manage your finances.

Try to minimize your use of cash, as it tends to be more difficult to track than debit or credit card expenses.

January 12, 2020

How to Prepare a Personal Finance Statement

How to Prepare a Personal Finance Statement.

Preparing a personal finance statement is a great idea. You are trying to get an idea of where you stand financially. You are considering a major life change that will affect your finances. You will need a personal finance statement. You want to start your own business, change careers, retire or travel the world. Prepare a personal finance statement by creating a balance sheet and an income statement that reflect what you have and what you owe.

Steps.

1. Decide what format will work best for you. Most people prefer to use a spreadsheet program such as Excel.

Use a simple pad of paper and a pencil, if you are not good with computers. A handwritten finance statement will be fine if you are the only who will see it.

Consider a software program that might help you prepare a personal financial statement, such as Microsoft Money or Quicken.

2. Create a balance sheet. A balance sheet will show you how much you own and what you owe, giving you an idea of your personal net worth.

Include assets in a column on the left. These will include bank account balances, the amount of money you have in stocks and the value of any property you have.

Place your liabilities in a column on the right. Liabilities will include your mortgages, credit card debt and other loans you are repaying.

Total the amount of your assets and liabilities. Subtract your liabilities from your assets. You will have a snapshot of your net worth.

3. Create an income statement. This part of your personal financial statement will show you how much money you earned and how much you spent.

Add up all of your income, including salaries, bonuses, rental and business income.

Add up all of your expenses, including what you pay in rent, utilities, fees and other regularly occurring bills.

Keep a special column or section for extraordinary occurrences of income or expenses that do not happen on a regular basis. For example, a large tax payment, a sizeable bonus or an expensive home repair might throw off your income statement and can be recorded separately.

Tally the difference between your income and expenses, and you have an idea of what your net income is.

4. Update your personal finance statement regularly. You might want to do it every month or every other month. This will help you monitor any changes in your finances.

5. Include a narrative with the numbers. This will help you remember what was going on during any specific period of time.

Provide a brief description of any special expenses. Mote how you calculated some sums, such as the value of your home.

6. Work with a financial planner or advisor. Ask a professional to review your personal finance statement to see if you have missed anything.

Tips.

Download templates if you are using Excel. You can find a Balance Sheet template and an Income Statement template in the Microsoft Office template library.

Use your personal finance statement for a variety of purposes. You can share it with lenders when you want to get a loan. An attorney if you are considering a major purchase or a bankruptcy and business partners you may consider investing with.

November 28, 2019

how to prepare a personal finance statement

How to Prepare a Personal Finance Statement.

Preparing a personal finance statement is a great idea. You are trying to get an idea of where you stand financially. You are considering a major life change that will affect your finances. You will need a personal finance statement. You want to start your own business, change careers, retire or travel the world. Prepare a personal finance statement by creating a balance sheet and an income statement that reflect what you have and what you owe.

Steps.

1. Decide what format will work best for you. Most people prefer to use a spreadsheet program such as Excel.

Use a simple pad of paper and a pencil, if you are not good with computers. A handwritten finance statement will be fine if you are the only who will see it.

Consider a software program that might help you prepare a personal financial statement, such as Microsoft Money or Quicken.

2. Create a balance sheet. A balance sheet will show you how much you own and what you owe, giving you an idea of your personal net worth.

Include assets in a column on the left. These will include bank account balances, the amount of money you have in stocks and the value of any property you have.

Place your liabilities in a column on the right. Liabilities will include your mortgages, credit card debt and other loans you are repaying.

Total the amount of your assets and liabilities. Subtract your liabilities from your assets. You will have a snapshot of your net worth.

3. Create an income statement. This part of your personal financial statement will show you how much money you earned and how much you spent.

Add up all of your income, including salaries, bonuses, rental and business income.

Add up all of your expenses, including what you pay in rent, utilities, fees and other regularly occurring bills.

Keep a special column or section for extraordinary occurrences of income or expenses that do not happen on a regular basis. For example, a large tax payment, a sizeable bonus or an expensive home repair might throw off your income statement and can be recorded separately.

Tally the difference between your income and expenses, and you have an idea of what your net income is.

4. Update your personal finance statement regularly. You might want to do it every month or every other month. This will help you monitor any changes in your finances.

5. Include a narrative with the numbers. This will help you remember what was going on during any specific period of time.

Provide a brief description of any special expenses. Mote how you calculated some sums, such as the value of your home.

6. Work with a financial planner or advisor. Ask a professional to review your personal finance statement to see if you have missed anything.

Tips.

Download templates if you are using Excel. You can find a Balance Sheet template and an Income Statement template in the Microsoft Office template library.

Use your personal finance statement for a variety of purposes. You can share it with lenders when you want to get a loan. An attorney if you are considering a major purchase or a bankruptcy and business partners you may consider investing with.

November 25, 2019

How to Finance a Business

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 13, 2019

how to finance a business well

How to Finance a Business.

When it's time to finance a business, there can be substantial work involved to facilitate this step. Every small business is different, and businesses in different industries and sectors have different ways of going about getting credit. There are various costs which widely range over the span of particular sectors. However, for the core process of securing the financial assistance that a business owner needs for a start up, some basic guidelines and principles will help create effective programs and a solvent business model. Estimate the costs of doing business, find out what you need to borrow money, and then research your financing options.





Estimating Costs of Your Business.



Determine the one-time costs of your business. These are costs that will only occur at the very beginning of opening your business. These include mileage (getting to a location), market research, advertising, and training. You will also need to look up any fees which will occur, such as a lawyer or consultant fee.



Calculate the recurring costs of your business. These are costs that you will have to pay over and over again, usually on a weekly, bi-weekly, or monthly basis. These include costs of utilities, insurance, wages, etc. Recurring costs are generally larger than one-time costs, and span a length of 10-30 years depending on your financing options. Calculate not only the total cost over the lifespan of your business, but also that on a yearly, and bi-yearly basis.



Ascertain whether costs are fixed, or variable. Fixed costs are those which will not change. The cost of your utilities, or your administrative costs are all fixed. Variable costs are those which will change over time. This includes wages, insurance, and shipping/packaging costs. The best way to keep all this information organized is to create a spreadsheet (use Excel). That way you can graph out this information, and view it multiple ways(bar graph, line chart, etc.).



Create a balance sheet. If you are just starting a small business, it is important that you write out balance sheets, which include: assets, liabilities, and equity. Each of these three categories will help you keep track of the finances of your business, and make it easier to pay your bills.

Assets = current assets(cash, accounts receivable, notes receivable, inventory) + fixed assets(land, building, machinery, furniture, improvements) + intangibles(research, patents, charity, organizational expense)

Liabilities = current liabilities(accounts payable, accrued expenses, notes payable, current long-term debt) + non-current liabilities(non-current long-term debt, notes payable to shareholders and owners, contingent liabilities)

Equity = Assets - Liabilities



Develop a cash flow analysis. This measures money which goes in and out of your business. This is then broken down into operational activities, investment activities, and financing activities. This analysis will help you determine when you break even, and can start reinvesting/expanding your business. Once more, the best way to do this is to create a spread sheet. Find all of your financial statements and gather them together before you start to analyze.

Operational = net income, loses of business, sales, and business expenditures.

Investment = purchases and sales of property, assets, securities, and equipment.

Financing = cash flows of all your loan borrowing and repayment.







Borrowing Money for Your Business.



Use equity financing to start your business. Equity financing usually comes from a primary investor, or other business. They will provide you a sum of money, in exchange for part-ownership of your company. This is a good option because investors look further down the road than a loan company, and you will have more money on hand. However, the investors will naturally want to interfere, and change aspects of your business model.

There are networks online which can set you up with a primary investor.

You can also check out private equity firms, which contain a vast array of specialized and experienced investors.

Remember, that small business owners generally use very little equity financing. It all depends on your business model, and the potential for growth.



Start your business using debt financing. Debt financing is when you take out a loan, usually from a bank or lending institution. This is a great option because the bank will have no say in how you run your business. The loan is tax deductible, and you can get short-term or long-term loans. However, you must have the loan repaid in a certain amount of time, and if you don't, you could have a hard time getting capital investment.

Talk to your local bank, or lending institution about the qualifications for specific loans. You will probably have to fill out some paperwork to determine whether or not you are qualified.

When using a local bank, you may be able to set up a personal relationship. This way, you can postpone a few payments if you fall on hard times.



Find out about credit scores and ratings. The higher your score is, the less risky you are to investors. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.

Use the online company TransUnion or EquiFax to determine your credit score. It is important to get an independent analysis, otherwise your own calculated score could be biased.

The main focus of the score is how long you have maintained a credit line, and how many monthly payments you have made on time.

If you have no prior experience taking out credit, it may be hard to get a loan. It is best to start using a credit card on small things like gas, or grocery store trips. Then gradually build up. Show the creditors you are a responsible client.[12]



Maintain an adequate debt to equity ratio. You want to make sure that the total debt and liabilities of your business is no more than four times the equity in the business. Equity simply means any retained earnings and cash injections by investors. In order to start out with equity, the owner of the business usually has to put in anywhere from 20-40%. This will maintain an adequate debt to equity ratio, and allow you to get a loan.



Put up collateral to start your business. Before you get a loan, the lending institution or bank will ask for collateral. This means you risk some of the items you own. In the case you cannot repay the loan, the bank can seize your property. Collateral usually includes homes, cars, furniture, equipment, stocks, bonds, etc. this is a scary proposition, so you need to be sure that your business will be financially successful beforehand.



Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available. Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.

Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.

Select the best deals. You want a loan that has the lowest interest rates and most favorable terms for repayment.









Financing Your Business.



Get a bank loan. Small, local banks have received more strict standards after the financial crash of 2008. However, large investment banks such as JP Morgan Chase and Bank of America have received a set of moneys from the Federal Reserve to lend out to small businesses. This is your best option to go with, although it takes the long to pay off. Local banks will set you up with a contract, and a monthly payment. The other benefit is that you can get this loan postponed if you are having trouble paying it off.



Place your home up as collateral. Banks will generally allow you to borrow up to 75-80% of your home's worth, as long as you have at least 10-15% already down on your home. This is great because the loan will have a much lower interest rate than a credit card. Talk with your financier, or local mortgage company for more detailed information.



Use your credit card. This is a very dangerous game to be played. You need to stay on top of your monthly payments. If you fall behind, you get trapped in a death spiral. However, when carefully managed, credit cards can be great to get out of an emergency. Only use a credit card occasionally, when you are experiencing a hole you know that you can get out of.



Tap into your 401(k) plan. You will need a financial expert who can start up a C Corporation which you can then roll your retirement assets into. This is also a risky business, because you are tapping into your nest egg. This should only be done if you have more money put away in a savings account, or if you are independently wealthy.



Try loaning money from your friends and family. Ask who would be willing to make a contribution, or purchase a percentage of the company. Go about asking members of your church for donations. Let local businesses to partner with you. You might make some acquaintances, and make some deals (you make cheese, they make wine, a chance to exchange).



Pledge your future earnings. Some companies, or peoples, are willing to gamble and put money upfront, if you are willing to commit a certain percentage of future profits. This is a gamble because they, and you, are betting that you will be able to earn enough in the future. There is usually a contract involved, guaranteeing that they will at least get some money back, so keep that in mind.



Kickstart your business. Crowd funding, in the age of the internet, has become a very popular way to finance businesses. Write a description of your business idea online, at sites like Kickstarter, and convince people to donate to your business. You will want to be really descriptive, and excited in your word choice. The downside of this is that it could take months or years before you raise enough money.



Secure an SBA loan. SBA (Small Business Administration) is a branch of the Federal Government that supplies loans to businesses struggling to get off the ground. However, there are a number of qualifications. You had to have been denied a loan from another bank before. You have to meet the government's definition of a small business. You will also have to meet other restrictions, depending on the type of SBA loan. Go to the SBA's website, and fill out a form if you think you might meet these qualifications.



Attract an angel investor. These are wealthy individuals who like to bet on the financial success of start-up businesses. Angel investors are usually found at private-equity, and venture capital firms. You will want to bring someone older, who looks like he has had experience in business before. Be passionate about your idea when you present, and know all of the financial details before you walk in the room. Keep in contact with the investor days and weeks after your initial meeting.





Tips.

Talk to numerous lending institutions before you pick a loan. Some will have better interest rates, while others will have better repayments.

Consult with family members first. Getting a small loan from them can avoid dealing with greedy credit lenders.

Get some experience in the business before you start your own. If you want to start a restaurant, make sure you have worked in a restaurant before. If not, you will wind up purchasing outside help which will cost you astronomical amounts of money.



Warnings.

Talk to a lawyer and a financial advisor to avoid colossal mistakes. The biggest regret of many first-time small business owners is not consulting with a professional before they begin the process.

If you are a person living paycheck-to-paycheck, it is best to wait to start a small business. If the business goes down hill quickly, you could lose your assets, and your life savings.

Take a year to save up money and make a detailed plan. You do not want to go into small business owning head first.

November 12, 2019