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Do you feel that getting out of debt is like climbing a mountain but never getting to the top?
If you do, you’re not alone – millions of people in the UK are in exactly the same situation – but fortunately, with the right advice, you can work toward being back in control of your finances.
We’ll take you through 4 easily achieved first steps that you can do today – each one taking you closer to resolving your money problems by tomorrow.
- Open your letters
If you’re anything like millions of other people in the country, the idea of opening your letters from creditors is one that fills you with dread. However, it’s important to understand why ignoring them can leave you in an even more dire situation.
Debt doesn’t go away, no matter what tricks people say exist – and actually, the companies you owe money to are likely to be far more understanding if you talk to them.
So, step one needs to involve pulling all those letters out of the drawer and opening them. If you feel too anxious to do it alone, ask a trusted and non-judgemental family member to come and support you while you do it, it always feels good to have someone on your side.
Make a note of all the companies you owe money to, the most recent amount they’ve requested and any account numbers you have. It might not feel like it, but facing up to the problem is an enormous part of the battle.
- Work out a budget
No one expects you to go without paying your rent, mortgage or other important outgoings to clear your debt – which is why it’s really important that you work out what your incomings and outgoings look like every month.
Working this out is a little time consuming – but you only need to do it once – and when it’s done, you can add and takeaway the numbers to get a good understanding of your spending.
Start with a piece of paper and a pen, make a list of everything you have to pay in the month. To begin with it’s important just to focus on the ‘essentials’, rent, mortgage, bills, payments and food and clothing costs.
Then make a note of all the money that’s brought into the household. That could be your salary, partner’s income, benefit payments… and so forth. Total up both of these lists. By taking the essential outgoings amount away from the overall income amount, you get the remainder that you’ve got to work with for the month.
Now, it might look like a lot, it might look like a little – but you’re not finished with it yet. Start a third list, adding up everything that you spend money on that isn’t an ‘essential’ – that might be nights out, hobbies, smoking – and so on.
It might shock you what these things add up to. Creating a budget like this is useful in two ways – first to give you an idea of how you really spend your money – meaning you can make changes if you like, and secondly, creditors and debt management companies might want to get an understanding of how much you can afford to repay – so doing it now shows that you’re willing to start working on the problem.
- Talk to someone who can help
Now, it’s easy to just tell you to start calling all your creditors and negotiating amounts of repayments with them – but in reality, this can be an extremely difficult process for an individual to manage.
Generally, the first company you speak to will want you to repay them as much as is possible – but where does that leave you with other companies that you owe? It’s very difficult to balance your repayments and make sure every company is satisfied.
For that reason, it’s worth talking to a company who can help you negotiate your position with all your creditors.
For an in depth view of what a company like this will do for you, have a look at this 2017 National Debt Relief Review (Recent Update). Essentially, you’ll have someone on your side who’s working with all your information and negotiating repayments that suit your budget – and satisfy your creditors. What’s more, they’re specially trained to negotiate with businesses, meaning they’re likely to get you a better deal than doing it yourself.
If you want to take the anxiety and logistical planning out of the picture, a company like this can be a massive help.
- Evaluate how you spend your disposable income
When you worked out your budget you got to a figure that was left after you took your outgoings from your income – this is generally referred to as your ‘disposable’ income.
Digging deep into how you spend this might give you a few shocks – especially when you add things up over the course of a month or a year. The best place to start looking at amounts of money that you don’t realise you’re spending is direct debits, recurring card payments and subscriptions.
Companies can be quite crafty in how they take your money – for example, you’re less likely to miss a small subscription payment when it’s taken just after your payday – whereas that extra small amount could be really helpful when it comes to paying bills toward the end of the month.
Look at on-demand TV packages, phone bills, gym memberships and magazine subscriptions and ask yourself “do I really need these things?” – sure, they might be a luxury, but if you’re watching a couple of movies every month – is it worth subscribing the channels?
After that, look at habitual spending – even take away coffees and lunchtime meal deals all add up.
No two people’s lifestyles are exactly the same – and we all need different things to get us through the day – but it’s really important to consider what you spend your money on – and whether it’s hindering your ability to pay off nagging debt. A series of small sacrifices now can mean you get a better night’s sleep when you don’t have debt to worry about further down the line.
Debt of any kind can feel like a dark fog surrounding and engulfing you. Not only does it feel dark and lonely, but it can stop you from being able to see just a few metres in front you. This can feel even worse if this debt is attached to your business – your main, and often only, source of income. You can feel particularly vulnerable and working may even begin to feel futile as everything you earn just disappears into repayments.
But, don’t worry, you aren’t alone, and there is something you can do. This guide will hopefully help you understand some solutions, and give you some well-deserved peace of mind.
Personal Debt and Business Debt
The first step to understanding your debts is to understand that there is a huge difference between personal debt and business debt.
Personal Debt, sometimes known as Consumer Debt, is essentially debts which are taken out by an individual to support themselves (and their loved ones). This could be anything from credit card debts to mortgages, although these are very different. People take out personal loans to cover living expenses, such as medical expenses, or even to fund Christmas.
Business Debt, which is often called Commercial Debt, is, as you might expect, is the debt which is accumulated by a business. The types of debt may appear very similar; there may be secured debts, which are tied to an asset, such as the equipment you needed to start your business, or unsecured debts, such as credit cards or bank loans. The biggest difference is that it is much more common, almost inevitable, for a business to have needed loans from day one, to create working capital. This may include hiring people and paying their salaries, purchasing your stock, and paying operation costs such as bills.
Another important difference is the way that debts are collected. Debt collectives are less restricted when going after business debts because it is believed that business owners should be much more capable than the average person. This can mean more contact with your creditors, which can, unfortunately, often mean more stress for you.
Manage your Debts
Now that you understand the differences between personal and business debt, it is important that you understand, and learn, how best to organize your debts.
First of all, if you have personal debts, as well as business debts, you need to separate them out. After you do that, managing them is largely the same. But you must do it for both, separately.
- Step One: Pay Off Your ‘Priority Debts’
These are your debts that would result in serious, and drastic, ramifications. Mostly, these are tax, rent, or utility arrears, or secured loans. You can’t hope to pay back your other loans, if the equipment you need is seized due to lack of repayments, then you won’t be able to pay off your other debts as your income will be affected.
- Step Two: Try to pay off more than your minimum payments
Your minimum payments are the absolute smallest amount that you can pay monthly to pay off your loans. Some people think that this means they can just pay that amount and not get into trouble with their creditors, and this is technically true. But, it is also not the best action to take. Interest and charges are still working on your debts, making them bigger and bigger. If you only make minimum payments, then you will be making payments for a very long time, and, ultimately, the total cost of the loan will be considerably bigger than the original loan. Calculate your non-priority debts, here.
- Step Three: Organise a budget
This step is a little more of a pain for those with business debts, because you need to create a strict personal budget, so that you know how much money you actually need to survive, and a business budget, so you know how much your absolute essential business costs are. While you are making this budget, you should also work to cut down these costs, so that you are able to use as much of your profits as possible to pay off your debts.
After you have understood and organized your debts, there are some more formal debt solutions that you can turn to, if you are still really struggling.
The best-known debt solution is that of liquidation. Any creditor who is owed £5,000 or more can start liquidation – this is called ‘Compulsory Liquidation.’ In this case, an Official Receiver takes control of the company’s finances and can sell assets, and control profits to pay off as much of the debt as possible. Directors can also opt to do ‘Creditors Voluntary Liquidation,’ however. This allows directors to have the opportunity to purchase the business assets to re-open the business as another company, after liquidation.
Another solution is to go into ‘Company Administration.’ It takes a year and involves the sale of a business and its assets to restructure it for future profitability. An Insolvency Practitioner assesses to what extent a business will be fit for trading in future if they agree that it has potential than they are appointed as the company’s Administrator, and they have financial control. If they don’t believe there is potential, liquidation is the usually the next solution.
One final option is to opt for a ‘Company Voluntary Arrangement.’ In this process, over a period of up to 5 years, an Insolvency Practitioner organizes repayments to creditors after having interest frozen. This allows the company to survive and for directors to retain control of the company. There is an equivalent personal debt solution called an ‘Individual Voluntary Arrangement.’
This might not be what you want to hear, but starting your business is, in many ways, the easiest part of being an entrepreneur. After all the struggles you had getting financial support, finding suppliers, and reaching your market, you now have to keep your business going, and become a success. But don’t worry, to help you do this, we’ve come up with some tips:
- You can never learn enough
If you learn nothing else from this article, I urge you to learn that you can never learn enough! In other words, educate yourself on all financial matters and keep educating yourself as you go along. Find out how to budget, find out about the best bank products, find out about stocks and shares – anything you think could be useful, will be useful!
Hopefully, this article will kick-start your education, but there is much more to learn! There are all kinds of resources that can help you do this. You can look around and find your own, but here is a list of three that we recommend:
- Keep Your Personal Finances Separate from Your Business
When you are self-employed, it can be very tempting to mix your personal finances with that of your business. It can feel more convenient, particularly if you used a lot of your own money and savings to start your business. But, this will cause huge problems in the future when you try to sort out your bookkeeping and taxes.
The key aspect of keeping your personal and business finances separate is to make sure you have separate bank and credit card accounts. This means you will be able to see what your revenue, expenditure, profit, and all your other key indicators are at a glance, and this is very useful for recording, and understanding, how well your business is doing. You don’t want any nasty shocks!
- Hire a professional bookkeeper
Another great tip, which will help you stay on top of your finances, is to hire a professional. They will prevent you from making any mistakes, but, most of all, will save you tonnes of stressful hours of sifting through paperwork. This may not be possible for every business because it does, obviously, cost money, but, even if it is not currently possible, you should prioritise this as your next financial goal. They are great because you can also learn from them through your journey to become a financial genius.
When you are looking for a bookkeeper, the first thing you will want to look for is someone you trust. It can be difficult to do this on sight, however, so don’t be afraid to move-on and try out another bookkeeper or firm if you find the relationship with your first choice isn’t working out. Some people prefer a close relationship with one, specific, bookkeeper, who they know well by name. Whereas, others are happy with a reputable, but large, firm. It really depends on your personal preference and situation which bookkeeper you settle on. However, the one piece of advice that I would recommend is to go fairly local. With the rise of the internet, many argue that you could hire bookkeepers anywhere in the world. But, this often requires significant effort on your part to scan, or send, large amounts of documentation, and it can mean you don’t have easy access to your own documentation. If you choose to work with someone who is just down the road – dropping off, and picking up, files becomes significantly easier.
- Make a Budget and Plan for the Future
You probably feel like you already did this when you started your business, as a great budget is really the only way to convince financiers to back you – they won’t trust just anyone with their money, after all. Unfortunately, this first budget isn’t enough, and it’s about time you make a new one (and then another, and another, and another…).
A good business will work at constantly adapting its budget to suit its circumstances. This means reviewing your budgets on a regular basis. You don’t need to make more than four a year (one per financial quarter), and even this may be too much if your circumstances aren’t changing often. But you need to be aware of how you plan to spend your money to be as sustainable as possible. After a while, you may get used to a regular cycle of ups and downs, such as increased orders at Christmas, but, in all honesty, if you are aiming for a constantly improving business, it may be in your best interest to hope that you don’t.
If your business is constantly growing and developing, like most people hope theirs will, then you will need to continue this practice of budgeting, and re-budgeting, all throughout your career. Who knows? You may be budgeting for £50,000 per annum of supplies today, but, in ten years’ time, you might need four times as much, just to keep up demand!
- Make mistakes!
The last piece of advice I have for you is to make mistakes and, more importantly, plan for it! I can almost guarantee you that you will budget incorrectly at some point or another. Maybe you mistake a temporary increase in demand for sustained growth, and budget for too much stock? Or, maybe you need to hire more people than you planned for? No matter what the mistake, the earlier you make them, the better, and the more you plan for them, the less of a problem they will be.
Try setting aside money every quarter and put it into a ‘Emergency Fund’, and then hope you don’t have to use it. Once the emergency happens, you will be cushioned from any problems, and you can learn from the mistake and add this to all future budgets. Don’t ever stop doing this, even if you become a very successful ‘expert’. Like your budgets, hopefully your business will continue expanding and changing, which means the problems and mistakes that you may face will also change. Today, you may be facing a crisis over an order of hundreds of units of stock; in 10 years, you may be facing working with international markets who need thousands!
Most of us would assume that when financial problems hit, we can at least count on being able to see them clearly. Unfortunately, this isn’t always the case! The complexity and business of modern life can often distract us when problems rear their heads, and it can be surprisingly hard to tell the difference between getting by and needing help. Denying problems may seem like a way to avoid them but, in the long run, they will catch up with you, so it is always better to stay in the know. Below are five common warning signs that your personal finances might be in trouble.
One – You never know how much is in your Bank Account
If you find yourself surprised when you come to check your bank balance, you probably have at least minor issues with financial planning. Never knowing what funds you have available can be dangerous, and lead to unwittingly dipping into your overdraft. Not regularly checking your bank balance also makes reckless spending easier, since you can temporarily shield yourself from the consequences. One outcome of our dwindling use of physical cash is that it is more difficult than ever to see the immediate impact of your spending. Luckily, the emergence of online banking, and banking apps, have provided an alternative way to stay on track. Making it a habit to check your account balance every day is one simple step you can take to curb unnecessary spending, and keep in control of your finances.
Two – You don’t have Savings
If you’re getting by on your wages day-to-day, not having savings set aside might not seem like a problem. However, it’s pretty much inevitable that, at some point, you are going to have to make an emergency purchase. This might be new tyres for the car, an essential house-hold repair, or something more benign such as a wedding or birthday gift. Not having money set aside to deal with this kind of spending can leave you with no other choice but to borrow when your monthly income won’t cut it. In the long-run, borrowing money for expenses like there can put you in a much worse financial position. The solution is, although it can be challenging, setting aside a small amount of money on a weekly or monthly basis and ear marking it for emergencies. Setting up a separate bank account to do this is a good idea, since it will be more difficult to accidentally spend it on non-emergencies.
Three – You depend on Credit
Relying on credit cards or payday loans to top up your income from month to month may seem normal for many people, but it actually suggests that you might need some help organising your finances. The more money you borrow, the more you will have to pay in interest, meaning that this kind of short-term borrowing can be a slippery slope, getting you further and further into debt. If you find yourself struggling to stretch your wages over the entire month, short-term lending solutions can seem like your only option, but these tend to have the highest interest rates and, ultimately, do you the most damage. A good alternative might be to ask your friends or family if you can borrow from them for a short period – this can be embarrassing, but it is far better than paying exorbitant interest rates. Alternatively, using an overdraft might be a cheaper way to borrow, so it is worth checking with your bank.
Four – You don’t have a Budget
Another financial practice which can help you avoid relying on credit from month to month is to create a budget. Even a very basic budget is the single best change you can make to the way you spend. Like having a shopping list when you go to the supermarket, having a budget gives you spending targets, so you will never be unsure if you are overspending in a certain area. The Money Advice service has a helpful budget planner tool which can be a great place to start.
Five – You avoid opening Bills and Statements
Avoiding opening bills and account statements addressed to you is a sure sign that your personal finances are not in prime health. Putting off opening these letters clearly demonstrates that you are experiencing some anxiety when it comes to your financial situation. As with most problems, putting off dealing with it does more harm than good, so the solution is to set aside some time to open them all, and figure out exactly how much you owe and to who. Getting in touch with creditors and explaining that you are struggling to pay is also a good idea. Believe it or not, in many cases creditors are sympathetic to your honesty and intentions to pay them back, and will adjust your repayment programme to one which you can afford.
Although admitting that there is an issue can be tough, it is always better to acknowledge it sooner rather than later. The sooner you recognise a problem, the sooner you can get help with it – and help is out there. Click here to learn more about debt, and how you can beat it.
How would you like to envision yourself ten years from now? Have you ever thought of starting your own business because you are tired of working on a daily basis? Well if you have doubts yet if you can do it or not, or you have a lot of questions in your mind, this article will guide you the process on how to start a business from the comfort of your home. For some reason, the majority of the people wanted to start their business for the reason that they want to increase their finances. Well, it is true that you will get rich if your business is successful but what if not? That is why when you start a business venture you need too carefully study and ask yourself many times the real purpose of doing such a big step. Starting a business and make it work doesn’t happen overnight it takes a lot process and courage to make it income generating.
To help you decide here are the following tips to start your own business
Are you a risk taker?
Not everyone is capable of starting a business; there are certain skills and personality those successful entrepreneurs have in common such as self-confidence, good communication skills and much more. The path to becoming a successful businessman is not an easy as what you think, it is like a rollercoaster ride, it’s not always up and most of the times is depressing, as only a few people can understand what you do. Even your friends or family will find you different.
Creating the Plan
Now that you have already determined, if you are one of them, you are now ready to create the business plan. Before quitting your job, you have to think of possible products and service which you think can create a steady stream of income in the future. You have to base it on your experience, expertise and most of all your passion as well. The secret to a successful business is to make money out from your passion.
Support system involves back up plan such as money, family, and people who can relate to you through ups and down. With regards to money, you can perhaps prepare a backup funds and money to start the business; lending companies are also welcome to help you. Of course, you cannot do it alone, and most of the time it will be depressing for you so having someone who can support you emotionally is helpful to you. You can also get close to the likeminded person or perhaps entrepreneurs to have gone through the same pathway.
Look to the Future
Many of the entrepreneurs who have started the business nowadays have only last for two years, so you’ll have to find ways on how to adopt change for you to make your business going. You can attend some business events around you to keep the business working and make it last. As we all know the world is changing as well as the market in different parts of the world, so you need to have a solid plan, adapt to new business tools, sales, and a strong foundation so in case there is a problem the business will not collapse.
So here are just a few of the most important tips to help you start a business, you can always ask from successful business who have been in business for years. Having a successful business will pay off all the hard work and time you have rendered so let the business planning started now.