Role of Stock Market in Financial System

March 18, 2018

The stock market plays a crucial role in the financial system. It is considered as one of the best ways to increase their funds. But before you make any investment into the stock market, you should know how to get started. It may turn out to be a profitable affair as long as you know the tricks of the trade. To start with, you must have an account in your preferred brokerage.

You need to pay the corresponding transaction fee as they will be acting on your behalf. Primarily the stock market offer liquidity which empowers the financiers to trade efficiently on their securities. This is regarded as one of the best features of stock market investment. Also the exchange rates are vital in financial dealings as it eradicates the risk to personal purchaser or supplier.

Many pioneer economists believe that the role of stock market has opened new avenues in terms of financial as well as the economic growth of a country. Today with easy access to internet you can buy or sell instantly with online stock trading system. Although stock market can boost your financial stability but you should never overlook the risks attached to it.

Basically it’s a matter of sharp market observation and speculation. The ever fluctuating stock market can leave you high and dry. You need to understand how to minimize the risks on your investments. Proper financial guide, market research, expert advice can help you to deal with the risks involved to a great extent.

Financial Statements Do Not Answer All Questions

March 1, 2018

An integrated understanding all of all the three components of a financial statement – Income statement, Balance sheet and a Cash flow statement is required to understand the operations of any business. The income statement reports the Profit or Loss for a period. The balance Sheet reports on the financial position of the business at any time; what the business owns and what it owes. The cash flow statement on the other hand tracks the movement of cash in the business, answering questions such as what has contributed to the cash inflows and what has contributed to the cash outflows. One should not treat all three statements as independent silos but understand the linkages between the statements.

Let us consider some linkages. Sales revenue is reflected in the income statement as sales for the period. Receivables are in the Balance sheet, indicating the value of receivables on a specific date. Receivables are amounts owed by the customers of the business. Businesses sell on credit. If all sales for a period are locked up in credit to customers, the business may have cash out situation. Cash out situation occurs when a business cannot meet its cash obligations. So technically a business could make a large profit, but if the debts are not collected may become bankrupt. In some situations, the reverse could also be true. A business may purchase the items that it sells on credit, sell to its own customers in cash or by credit card and pay its vendors only after realising the proceeds from its customers.

A Business manager’s task is therefore three fold. Earn good profits, reflected by a growing profitability percentage and increased market share. Control assets and liabilities and hold them at a relatively stable position- this will be different from industry to industry, business to business. Finally to ensure that there are no cash outs and the business is able to continue to meet its ongoing cash obligations.

Therefore understanding the linkages is critical for a business manager to ensure maximization of income and optimization of assets.

Relationship Between Insurance and Finance

February 18, 2018

Insurance and finance are closely interwoven fields of business, not least because they both involve money. They also often both involve speculation and risk, and often where one goes, the other will follow. Take property investment for example, it involves a large amount of capital out lay, swiftly followed by insurance to protect the capital investment. It would be ridiculous to spend such a vast sum of money on a venture and not protect it against possible damage. It therefore makes sense to store information on these two subjects together, as the relationship is so logical.

Insurance is a form of risk management used to protect the insured against the risk of a loss. It is defined as the equitable transfer of the risk of a loss from one entity to another in exchange for a premium. There are different kinds of insurance for just about every conceivable event. The most common insurance is probably life insurance, which provides a monetary benefit to a decedent’s family or other designated beneficiary.

It can cover funeral or burial costs and can be paid out to the beneficiary in either a lump sum or as an annuity. Property insurance is one of the more necessary insurances as property is extremely expensive and if it is lost or damaged for some reason (fire, earthquake, flood) it can be very difficult to replace without adequate reimbursement. Travel insurance used to be seen as an unnecessary expense and is still viewed as such by many. Its importance is, however, being increasingly recognised by the public at large. It is cover taken by those who travel abroad and covers certain unforeseen events such as medical expenses, loss of personal belongings, travel delays etc. There are numerous other types of insurance, too many to mention, all vital if you want to protect something of particular importance to you or another.

In the world of finance there are many sub-categories, also too numerous to mention but a few will be included here. Forex, or the foreign exchange market wherever one currency is traded for another. It includes trading between banks, speculators, institutions, corporations, governments, and other financial markets. The average daily trade in the global forex is over US$ 3 trillion.

Tax consulting usually involves CPAs and tax lawyers in addressing any tax issues that you may have. There may also be Professional Strategic Tax Planners and Enrolled Agents, depending on the company that you hire. They will help you reduce your tax debt, eliminate tax penalties, an innocent spouse claim, tax liens, bank levies, and preparing unfilled tax returns, as well as any other tax resolution problem that you might have.

Property investment is usually when an investor buys property with an eye to generate profit and not to occupy it. It is an asset that has been purchased and held for future appreciation, income or portfolio purposes. In some instances an investment property does not have to be held for profit, as some landlords in New York lease office buildings to non-profit organisations for tax purposes. Homeowners consider their homes to be investments but they aren’t classified as investment properties. Perhaps if you’re buying your second or third home, it can be considered an investment property, especially if you plan to rent it out to help pay off the home loan.

Business networking is a marketing method, which is as old as business itself. It’s been around since ever since people learned to hold a glass of whiskey and schmooze. In fact, its probably been around a lot longer, Cro-Magnon man probably gathered around the newly discovered fire and showed each other their collection of animal teeth and traded them. Creating networks of crocodile teeth owners and sabre toothed tiger owners, who tried a take over bid against the sabre toothed leopard owners. Business networking is designed to create business opportunities through social networks. It helps if the people involved are of the same frame of mind.

Guide to Financial Freedom

February 2, 2018

Bill and Mary Toohey, authors of The Average Family’s Guide to Financial Freedom, make average middle class salaries. Mary works as an office manager and Bill as a vocational rehab counselor for the state. On modest incomes, they have attained financial freedom and ensured that their needs will be met through retirement. Their book is a guide for others who want to achieve financial security despite today’s challenging economy. It’s my favorite how-to guide in my large collection of books about personal finance..

The Tooheys have achieved financial security by spending less and therefore saving more. In fact, they save 46 percent of their gross income. Think about that. That savings figure is based on gross income, not net. It is truly impressive given that they’re not making huge incomes.

How did the Tooheys do it? This book tells their story. They foster an attitude of gratitude and contentment. They don’t focus on what they don’t have. Bill and Mary describe their motivation as “building a money-saving mindset”.

A big part of the Tooheys’ success is their choice to live in a modest home. Too many of us stretch to buy a house or condominium we can barely afford and then go into debt to furnish, decorate and update our big new home. The Tooheys, on the other hand, bought a smaller house than they could afford. Rather than using it as a stepping stone to a larger home, they have stayed put and paid off their mortgage in just ten years. They estimate that they have saved more than $100,000 over the years by choosing their small house. A smaller house means that you spend less on utilities, maintenance, interest costs, taxes, and furnishings.

The authors look at the small expenses and the large in their efforts to spend less. No question about it, they are careful spenders. In their book they share tips for buying cars and groceries and for spending on entertainment and education. Learning is important to their family and they share their tips for going to college without going into debt.

Much of the Guide to Financial Freedom is devoted to how to be a careful spender and avoid financial mistakes in your day-to-day life. There’s also a great deal of solid, friendly advice about how to raise responsible kids, how to maintain your possessions, and how to set up a home office that will keep your family organized. There’s even a chapter on how to live happily in a one-bathroom house — something that too many people today think is impossible.

The Tooheys also devote several chapters to investments and to retirement. There is advice and information about where to invest and about the various forms of retirement plans. They freely share their own mistakes and what they’ve learned about investing.

You can’t help but really like Bill and Mary Toohey as you read this book. They seem like people you would want as friends or members of your family. There’s nothing fancy or convoluted about their advice. It’s solid, straightforward guidance from somebody you’d really want on your team. If you’re looking for financial advice and want to learn how to navigate today’s challenging economy you’ll want to pick up Bill and Mary Toohey’s book, The Average Family’s Guide to Financial Freedom.