Alfred Ramosedi, African Bank Group Executive: Sales and Marketing, says this is one of the many challenges parents face but also the most incredible gift you can give your children. “The problem we are facing is that when children grow up in privileged environments, they don’t know how to manage money. They’ve never learnt to save towards a goal or even been taught the basics of investing, despite growing up in households where saving and investing for the future were possible,” he says. Ramosedi says that, without doubt, children whose parents encourage them to manage money grow up to be responsible and financially independent adults.
“What parents need to understand that it’s never too late to start teaching your children about money. If you haven’t done so yet, start today,” he says.
So, as a parent where do you start? Ramosedi offers the following advice:
Piggy banks and saying no
Teach your very young children about saving money through a piggy bank concept and the value of money by not buying them everything they see. “Young children respond very well to the concept of saving if they have a realistic goal to work towards. It’s also interesting to see how quickly children learn that ‘money doesn’t grow on trees’ when they are told they have to wait for an item and don’t have it purchased immediately. There is nothing wrong with telling your children they can’t have an item because you don’t have enough money but will save towards it.
Set up a meeting with a financial advisor when your child gets their first job. Encourage them to put a percentage (say 10%) of their earnings into savings or possible investments each month. It is a good principle to learn from when you are young. People who have adopted this principle have learnt to manage their money, while those who haven’t, never seem to have enough money. You might even want to consider matching their percentage of savings each month as a reward for their diligence.
A big problem in society currently is that parents are expected to support their children financially for longer. This places enormous pressure on parents. “There seems to be a culture of delaying working life amongst millennials. Tertiary education, for example, is often seen as a way for young people to avoid entering the work space. Money spent on education is only an investment if your child takes their studies seriously, it should not be used as a way to delay working life. By insisting your child takes out a student loan to study they may strongly rethink whether studying is for them at all. The longer we support our children financially, the more we erode their self-confidence and independence. Don’t be afraid to set boundaries and enforce these when it comes to money and how it is spent in your home.
Celebrate hard work
Teach your children to be proud of the work they do – whether it’s doing chores for pocket money or starting a small business. Having a job and a purpose is something to be proud of. Children should learn to value work from a young age because earning an income and using it wisely are interconnected.
“Children learn through the values they experience at home, not through what they’re told to value. If you want to give your child the gift of knowing how to manage money, be a good example. Decide what your value system is and don’t be afraid to discuss finances with your children,” concludes Ramosedi.
Is Leasing a Car Right Now Your Best Option?
We are living in times whereby buying as opposed to leasing or renting is seen as a form of investment, the level of achievement, self-worth and so forth. When you are ready to acquire a certain asset, you automatically think along the lines of purchasing it via financing or cash. For some people, it might make better financial sense to lease or rent out assets more especially, if you take the weakening Rand and inflation rates into consideration. Do you fall under this category? Do you believe in the comfort of buying and ultimately owning your assets? If you have not given this much thought. Let’s explore which option/s would best suit your pocket, needs and lifestyle say you had to get a car today.
What personal vehicle financing options do we have at present in the country? What are their benefits and disadvantages? Let’s discuss…
1. Installment Sale
When you are able to purchase a vehicle and pay for it over an agreed period. At the end of the credit agreement and final installment, ownership is automatically passed to you and you can also choose to trade in the vehicle.
BENEFIT – If you own a car you do not have economic penalties or mileage restrictions like when you lease or rent a vehicle.
DOWNSIDE – Service or motor plans and insurance costs are your sole responsibility even before you become the official owner.
When you are able to have uninterrupted use of a vehicle without owning it. However, you have the choice of owning the vehicle by settling/refinancing the guaranteed future value or returning it to the financial institution at the end of the agreement period.
BENEFIT – You can drive a brand new car every 2 to 4 years and enjoy new model advancements like more safety, petrol efficiency and vehicle performance as a whole.
DOWNSIDE – You will be obligated to pay balloon payments at the end of the agreement period. You have an annual mileage limit and if you exceed it the charge per kilometre will vary according to the vehicle purchased.
When you able to have uninterrupted use of a vehicle without the option of ever owning it. You basically pay for the use of the vehicle.
BENEFIT – You have more repayment options such as annual or quarterly repayment plans. You can also negotiate a residual value to reduce monthly payments.
DOWNSIDE – You need to return the vehicle in good condition and within the agreed mileage restrictions and parameters. You will be liable to pay for restoration costs except for fair wear and tear.
If you have a bad credit rating or are blacklisted you can “rent to own” a car for a predefined period of time while driving around in it and paying a monthly rental fee. If you want to terminate your agreement, you need to simply return the vehicle to get your deposit back. If we are still undecided about getting a car why not look into investing your hard earned cash instead?
Applying for credit: responsible borrowing means taking up only what you can afford
The right credit at the right time can add significant value to your life and your financial wellbeing. But taking out a loan is never a decision to be made lightly.
“The fact that you qualify for credit, does not mean you are ready to take it up,” says Mark Young, deputy CEO at Bayport Financial Services. “Consumers who are unprepared for the responsibilities of credit often do damage to their credit profile and end up with more debt than they can handle. Responsible borrowing means taking up only what you can afford, and paying your account regularly as per your agreement”.
Here are a few important points to bear in mind when you consider applying for a loan:
The National Credit Act states that you have the right to apply for credit, be protected against discrimination in the granting of credit and be given sufficient reasons why your application was declined. You also have the right to documentation written in plain and simple language.
The credit provider’s rights and responsibilities
As part of considering your loan application, the credit provider has the right to ask your permission to access your credit records from a credit bureau. The provider also has the right to turn down your application should it find sufficient reason to do so.
A credit provider’s assessment and decision is based on your credit profile, and the information you provide in your application. It is in your own best interest to be honest and open in your application.
Criteria to obtain credit
Credit providers want to be confident that the credit they grant will be paid back on time and in full. Therefore, they conduct a credit risk assessment using the following criteria:
· Can you repay the loan?
This is a measure of whether you can afford to repay the loan on time, and depends largely on your gross income and expenses.
· What does the economy look like?
A poor economy might make it harder for you to repay the credit. Credit providers consider factors, such as the potential for strikes or retrenchments in your industry, which might affect your job and income.
· Will you pay if you can?
Credit providers also look at your credit behaviour to determine the risk you might pose to them. Here they will assess your credit profile from a credit bureau and will check their own credit records to see how you managed your relationship with them in the past.
“How you managed your finances in the past will have a big impact on your ability to get a loan in future,” says Mark. “If you have drawn up a personal budget and ensured that you can afford it, credit can be a great way to relieve financial pressure and start building an asset base for your future.”
How to Better Manage Your Cash Flow
Cash is king when it comes to the financial management of a growing company. The lag between the time you have to pay your suppliers and employees and the time you collect from your customers is the problem, and the solution is cash flow management. At its simplest, cash flow management means delaying outlays of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible.
Measuring Cash Flow
Prepare cash flow projections for next year, next quarter and, if you’re on shaky ground, next week. An accurate cash flow projection can alert you to trouble well before it strikes.
Understand that cash flow plans are not glimpses into the future. They’re educated guesses that balance a number of factors, including your customers’ payment histories, your own thoroughness at identifying upcoming expenditures, and your vendors’ patience. Watch out for assuming without justification that receivables will continue coming in at the same rate they have recently, that payables can be extended as far as they have in the past, that you have included expenses such as capital improvements, loan interest and principal payments, and that you have accounted for seasonal sales fluctuations.
Start your cash flow projection by adding cash on hand at the beginning of the period with other cash to be received from various sources. In the process, you will wind up gathering information from salespeople, service representatives, collections, credit workers and your finance department. In all cases, you’ll be asking the same question: How much cash in the form of customer payments, interest earnings, service fees, partial collections of bad debts, and other sources are we going to get in, and when?
The second part of making accurate cash flow projections is detailed knowledge of amounts and dates of upcoming cash outlays. That means not only knowing when each penny will be spent, but on what. Have a line item on your projection for every significant outlay, including rent, inventory (when purchased for cash), salaries and wages, sales and other taxes withheld or payable, benefits paid, equipment purchased for cash, professional fees, utilities, office supplies, debt payments, advertising, vehicle and equipment maintenance and fuel, and cash dividends.
“As difficult as it is for a business owner to prepare projections, it’s one of the most important things one can do,” says accountant Steve Mayer. “Projections rank next to business plans and mission statements among things a business must do to plan for the future.”
If you got paid for sales the instant you made them, you would never have a cash flow problem. Unfortunately, that doesn’t happen, but you can still improve your cash flow by managing your receivables. The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Here are specific techniques for doing this:
Offer discounts to customers who pay their bills rapidly.
Ask customers to make deposit payments at the time orders are taken.
Require credit checks on all new noncash customers.
Get rid of old, outdated inventory for whatever you can get.
Issue invoices promptly and follow up immediately if payments are slow in coming.
Track accounts receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery (c.o.d.) is an alternative to refusing to do business with slow-paying customers.
Top-line sales growth can conceal a lot of problems-sometimes too well. When you are managing a growing company, you have to watch expenses carefully. Don’t be lulled into complacency by simply expanding sales. Any time and any place you see expenses growing faster than sales, examine costs carefully to find places to cut or control them. Here are some more tips for using cash wisely:
Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days.
Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.
Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you’ll need their trust and understanding.
Carefully consider vendors’ offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a change to reduce overall costs. The devil is in the details.
Don’t always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price.
Sooner or later, you will foresee or find yourself in a situation where you lack the cash to pay your bills. This doesn’t mean you’re a failure as a businessperson-you’re a normal entrepreneur who can’t perfectly predict the future. And there are normal, everyday business practices that can help you manage the shortfall.
The key to managing cash shortfalls is to become aware of the problem as early and as accurately as possible. Banks are wary of borrowers who have to have money today. They’d much prefer lending to you before you need it, preferably months before. When the reason you are caught short is that you failed to plan, a banker is not going to be very interested in helping you out.
If you assume from the beginning that you will someday be short on cash, you can arrange for a line of credit at your bank. This allows you to borrow money up to a preset limit any time you need it. Since it’s far easier to borrow when you don’t need it, arranging a credit line before you are short is vital.
If bankers won’t help, turn next to your suppliers. These people are more interested in keeping you going than a banker, and they probably know more about your business. You can often get extended terms from suppliers that amount to a hefty, low-cost loan just by asking. That’s especially true if you’ve been a good customer in the past and kept them informed about your financial situation.
Consider using factors. These are financial service businesses that can pay you today for receivables you may not otherwise be able to collect on for weeks or months. You’ll receive as much as 15 percent less than you would otherwise, since factors demand a discount, but you’ll eliminate the hassle of collecting and be able to fund current operations without borrowing.
Ask your best customers to accelerate payments. Explain the situation and, if necessary, offer a discount of a percentage point or two off the bill. You should also go after your worst customers-those whose invoices are more than 90 days past due. Offer them a steeper discount if they pay today.
You may be able to raise cash by selling and leasing back assets such as machinery, equipment, computers, phone systems and even office furniture. Leasing companies may be willing to perform the transactions. It’s not cheap, however, and you could lose your assets if you miss lease payments.
Choose the bills you’ll pay carefully. Don’t just pay the smallest ones and let the rest slide. Make payroll first-unpaid employees will soon be ex-employees. Pay crucial suppliers next. Ask the rest if you can skip a payment or make a partial payment.
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