Businesses, finance and money are integral to our day-to-day lives. From funding a small grocery shop to saving for an education, from paying up the EMI on a new phone to investing in shares, from building a business empire to starting a successful venture, money is a pivotal player in human existence. Knowledge of finance and business is paramount because it ensures sound decisions are made to prevent a ruinous lifestyle.
Business entails an organised effort to produce goods and/or services for the benefit of the consumer. It can be as simple as a hot dog stand or a multinational corporation. The main aim of a business is to address a need or want in the best manner possible while making profits in the process
Some people would start a restaurant business because they value their good cooking skills and want to make money out of their skills. Others would start a tuition centre because they love interacting with children and helping them achieve good grades. Others still might start a repair centre because they are determined to help people with their gadgets, cars and other things.
An entrepreneur is a person who initiates a business venture. He/she is a risk taker and innovator. Entrepreneurs are important because they create employment, develop products, and foster innovation. A viable business idea does not necessarily require a lot of capital. Sometimes, one can utilise his/her skills to generate income. Examples include online tutoring, designing, content writing, selling handmade products, cooking at home and selling, and online marketing. However, one must note that an idea can only be a viable business plan if there is a market for it.
The following questions should be considered when coming up with a business plan:
- What problem will my business solve?
- Who are my target customers?
- What makes my product or service superior?
- How much money will I need to start?
- What are the risks, costs and competition?
A startup is a new business venture that employs a radical idea or innovative project to penetrate a market. It is common for startups to target a niche market and utilise technology to scale up their profits substantially. Startups normally operate with a lot of experimentation and iteration to determine what works and what does not. However, this does not guarantee success. Most startups incur debts due to the risks involved.
Innovation is key to business success since customer needs and wants are not static. Businesses must remain relevant by adopting new ideas and technologies. If a business is not willing to meet the needs of its customers, it is bound to crumble under the competition of other firms that are willing to embrace change.
Savings refer to the amount of money one sets aside from income. It is important to save some money aside from the earnings to provide a backup source of income. Savings should be regarded as a priority because they cushion against sundry expenses, education fees, vacations, business ventures and retirement. One should learn to save first and spend later. Even if one has a small amount of money to save, he/she should do so. Saving a tenth of one’s weekly allowance, for instance, teaches a child to be responsible and mature with finances.
One can never predict when a disaster might strike. In times of such trials, savings come to aid. In addition to trials and tribulations, savings can help fund holidays and other recreational needs. Savings are useful in emergencies such as medical bills, job loss, home repairs, car repairs and family needs. It is unwise to utilise loans or other people’s money to address personal needs, especially since such an action could lead to long-term debt.
A loan refers to a sum of money that is borrowed and later repaid with interest. Loans are significant because they enable people to realise their dreams and aspirations. Some people take loans to pay for college fees or start businesses that can help them be economically independent. However, one should seek to understand the terms and conditions of a loan before applying. One should be aware that a loan involves regular payments of instalments until the loan is fully settled. A prudent borrower is one who understands the following:
- Interest rate: this is the percentage charged on the loan amount.
- Time to repay: this is the length of time one will take to repay the loan.
- Monthly payment: this is the amount one will pay towards the loan.
- Processing fees: this is a fee that is charged for sanctioning a loan application.
- Penalties: these are charges that are incurred when a borrower fails to clear a loan.
An EMI, which stands for Equated Monthly Instalment, is a monthly payment that one makes to clear a debt. EMIs are important because they ease the burden of repaying loans. They are useful because one spends less on a monthly basis on the loan repayment. However, one should budget wisely to avoid sleepless nights due to the inability to clear debts. A budget is a financial plan that helps one track how much money is earned and how much is spent. Budgeting assists in tracking expenses and savings. A budget is vital because it enables an individual or a household to track where the money is going. It serves as a reminder of expenses that must be met. In this regard, it is important to utilise personal finances wisely. One can develop a monthly budget template to help in the tracking process. The template should include income, expenses (such as food, transport, education, rent, bills, health needs, entertainment), savings and loan payments. It does not mean that one should live a life of austerity. It just means that one should spend sensibly and avoid being extravagant with the hard-earned money.
There is a significant difference between saving money and investing. While saving money entails putting money aside in a safe place, investing is putting money into something that will yield profits. Some examples of investment schemes include fixed deposits, mutual funds, shares, bonds, gold, real estate and retirement funds. It is important to remember that high-risk investments yield high rewards. Before one decides to put his/her money at risk, it is important to calculate the following:
- Purpose of the investment
- Risk appetite
- Time frame of the investment
- Whether there is an emergency fund
It is unwise to utilise money that one will need in the near future to invest. One should only utilise the surplus amount of money to invest. It is also vital to remember that one should not get lured into the stock market due to the hype surrounding it. One should do his/her research and hire a reliable financial advisor to help him/her navigate the murky waters of the stock market.
Financial literacy entails understanding how to earn money, save money, spend money, budget, take loans, and invest. It is a critical skill because it ensures that individuals are not taken advantage of financially. Lack of financial literacy results in people being cheated and manipulated financially. People who are financially literate can avoid debt traps and make sound financial decisions that enable them to achieve financial freedom.
Students can develop financial literacy from a young age. They can learn to differentiate between needs and wants. The concept of needs refers to items that are necessary for survival. Wants refer to items that are desirable but not essential. It is important for human beings to learn to prioritise the important things in life. Setting financial goals is important because it enables one to determine the amount of money one needs to achieve a given dream. Some financial goals are short-term while others are long-term. The short-term financial goals may include buying a new phone, pursuing further studies or meeting an emergency. The long-term financial goals may entail buying a house or starting a business. A financial goal acts as a pointer to indicate the amount of money that one needs to save or invest to realise a dream. It is important for an individual to develop financial goals in order to utilise finances in a purposeful manner.
Companies are vital economic entities because they manufacture goods and provide services. Some companies operate on a global scale while others operate locally. It is important for all companies to utilise their resources to create products and services that meet the demands of the customers. A company will not be successful if it has a great product but poor financial management. Similarly, the employees must be convinced that their efforts are valued. Company managers and owners should strive to create value for their customers by providing high-quality, affordable products and services. A company should also strive to be ethical and responsible. The term ethics means being principled and moral. A company should utilise legal and ethical strategies to run its operations. A company should refrain from bribing government officials, misrepresenting its products, engaging in corrupt practices, and failing to reward its employees for their hard work and loyalty. A company should also deal with its consumers in a fair and respectful manner. It should always prioritise the best interests of its consumers. It should also respect the privacy of its consumers.
Wealth building entails being smart with finances. People should learn to spend wisely, save a portion of their income, and invest. One should set clear financial goals to help him/her determine how to utilise his/her finances in the best possible manner. Building a successful career is one of the best ways to increase one’s income. Sound financial decisions are the most crucial step in the wealth creation process. Wealth building is a marathon and not a sprint. It entails a lifetime journey of saving, spending wisely, investing and utilising money to meet personal needs and wants.
Conclusion
Businesses, finance and money are important aspects of our lives. Understanding business is important because it enables people to identify lucrative ventures. Knowing how finance works is important because it enables people to save money from being stolen or misused. Savings provide a life line and ensure that one has a financial cushion against sundry expenses.
The best financial decision that a young person can make is to budget wisely.
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