A common nugget of advice offered by financial planners is the following: ‘Make your money work for you.’ Precisely what this means will vary from one finance expert to the next, but there are a few golden rules to ensure that you get the best bang for your buck, every time.
For starters, before any money is invested in a business venture, sufficient capital needs to be safely tucked away for eventualities. Between 3 and 6 months of ‘all expenses paid’ is suggested as a cushion against economic uncertainty, volatility, or unwelcome surprises.
A Stash of Cash for Eventualities
Investors consider multiple safe-haven options for their emergency funds. In an era of historically low interest rates, it’s important to shop around for ironclad investments that pay dividends. Certificates of deposit at banks and financial institutions are regarded as safe and secure, although they are still associated with a low yield.
Government bonds (treasuries, gilts etc.) are regarded as safe as houses, but interest-related appreciation is equally negligible. Various online banks and financial institutions are coming into their own as viable alternatives to traditional banks, owing to lower overhead costs and higher rates of return. Traditional IRAs, 401(k)s and top-performing mutual funds offer added incentive for capital appreciation over time.
Shop around with Personal Loan Applications
Once you have safely stashed away an emergency stockpile, it’s time to consider your financial options. Entrepreneurs are often the first and last line of defence in terms of their own financial survival, so it behooves them to make smart decisions from the get-go. Cost minimization is as important as profit maximization – the two go hand-in-hand.
Financial planners advise entrepreneurs to retain as much of their personal capital as possible – separate from business operations. In this vein, it’s important to ‘use other people’s money’ to make your business profitable. This requires making applications for personal loans from accredited, trusted and reliable providers.
Tips For Personal and Business Credit Cards
When applying for lines of credit, it is important to shop around. Each lender will have specific rules, requirements and conditions attached to their offers. Business credit cards and personal credit cards differ in terms of the rewards available to clients. A business that requires frequent travel is ideally paired with credit facilities that reward the account holder with frequent flyer miles, hotel points and the like.
For every dollar, pound or euro that is spent on a business credit card or a personal credit card, the account holder enjoys rewards. Debt management is equally important. If possible, entrepreneurs should make every effort to pay back in full the outstanding balance on their credit cards – personal or business – before the end of the month. That way no additional fees are incurred on the borrowed money, plus you get the benefit of the miles, cashback offers, rewards and promotions.
Diversifying into Real Estate
It’s important to diversify your asset portfolio across multiple sectors. This adds additional protection, and guards against economic downturns. Real estate is widely considered to be one of the safest investments over the long-term, despite occasional corrections and bubbles that appear from time to time. The US housing market endured a dramatic crash after the 2008/2009 recession, but it is slowly creeping up to pre-recession levels. Over the long-term, real estate whether private or commercial tends to be a hedge against market volatility.
In all instances, each investment option that is considered should be carefully studied. It is imperative to evaluate your financial health as judiciously as possible before you make potentially life-changing decisions. Certain investments and money-management activities are quick to shift around, such as savings and checking account deposits, CDs and stocks. Others like real estate and investments in businesses tend to lock up your capital for the long-term. The right balance needs to be struck between business allocations and personal financial security.