Category Archives: Money

What to look for in investments

One of the most important ways that we attempt to secure our finances, whether as individuals or business owners, is with proper investments. Knowing what makes for good investment then is crucial to everyone, in terms of financial decisions.  Let’s consider what a good investment looks like.

What is an investment?

Broadly speaking, investment refers to something that will ideally generate income, profit or will appreciate in the future. As Investopedia highlights: “In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.”

Examples of investments that most people know and use are stocks, businesses and real estate. Each of these can be invested in, ideally leading to an increase in an investment’s value – which means, should we wish to cash out or sell, we will have more at the end of the day.

Naturally, this means there will be better and worse qualities defining what constitutes good investments.

What makes for a good investment

The first thing to consider is what the total value is of the company versus the stock. This means knowing market capitalisation. The Economic Times defines it as: “The aggregate valuation of the company based on its current share price and the total number of outstanding stocks.” We should speak to financial experts so that we aren’t overpaying for a company’s stocks. Bad investments are often a result of paying too much for stock, for companies that are in fact worth less in terms of market capitalisation calculations.

Second, we should know about a company’s overall growth and per stock growth. As one investment expert noted:

“Most investors focus on a company’s share price. They should spend more time looking at a related question – how many shares the company has, and whether that number is growing or shrinking.”

This has an enormous impact in terms of the financial decisions we make, since it could mean we get swindled easier.

Third, we must remove emotions from business investment. No matter how much we might love a business, relate to its staff and so on, these shouldn’t be sufficient reasons for our investment. While feelings and emotions can drive a business toward profits, that’s no guarantee.

All of this is incredibly important when considering what constitutes best investments in South Africa and around the world.  

Tips when considering equipment finance

Every business needs equipment to function. Data today is digitised, with information from clients stored in servers and hard drives, not folders or papers. We also use equipment just to complete our tasks: whether we’re farmworkers or cutting edge designers. Regardless of what we do or who we are, we do require equipment – but that can be hard to come by, especially given how expensive everything is these days. One solution is to attempt equipment finance, letting us receive the necessary funds while paying back in installments.

What is equipment finance?

As the Business Dictionary defines it, equipment finance is: “Any method of extending capital to businesses for the purpose of acquiring equipment.” The options vary between finance houses and the relationship with the business.

Why choose equipment finance?

We can see the advantages here. Indeed, some experts point out that even if we have the necessary cash to pay for costly equipment, it’s still wise to consider equipment finance. For example, while we might be able to pay for an expensive piece of equipment right now, this means an immediate, massive hit to our cashflow.

This also doesn’t take into account maintenance or emergency issues, further requiring dipping into our cash reserves. In fact, we might not have enough after purchasing to sort out emergencies, so we might need a loan anyway.

Instead, going for financing options means we aren’t hit by massive deductions and can manage repayments in a way that doesn’t jeopardise our cashflow.

But, like all forms of financing, we should be considerate about precisely what is meant by this transaction. Let’s consider two pertinent aspects when it comes to equipment finance.

Calculation

One of the first questions we must ask is precisely what the financing will be for. All lenders will want to know this, too, of course – since they don’t just want to give the money to just anyone. Obviously, we want equipment that can aid us in obtaining profits. We must therefore carefully calculate the expenses for the equipment against how much it will return. We don’t want to get equipment that ends up costing more and making us less profit, after all. This immediately would disqualify us from consideration.

Communication

We must find a lender who can maintain an open line of communication, so both sides know precisely the details of the transaction. No one wants to be misinformed when it comes to money. This also means we must thoroughly understand the terms of any agreement reached.

By thoroughly engaging with calculation and communication, we will have a better basis to engage any transaction about financing for equipment. Ideally, this will lead to profitable business and a healthy relationship with a competent lender.

(Picture credit: PublicDomainPictures / Pixabay

What gets people to buy expensive things?

Most people are not rich, yet most of us still want a home and cars. The question is what motivates people to acquire items, usually beyond their means? Expensive doesn’t necessarily mean luxurious: After all, cars are necessary for travel and homes are needed if we want somewhere to live. Indeed, for most of us, we’re not talking about Ferraris or big mansions. Yet, even the least expensive will set us back somewhat.

What then drives us to get them?

Necessity and indulgence

Too often when discussing issues of why people buy expensive items, we assume that the items are not important. But as we noted, homes and cars are often necessities. This doesn’t negate that cars and homes can be luxuries, as any unbelievably large mansion or someone’s third or fourth car demonstrates. No one needs houses so large they take up nearly a whole field. And we can’t drive more than one car at a time.

Yet, rich people will and do indulge in such excess because they can. And, unfortunately, wealth is often tied to a sense of fulfillment according to researchers. This is so potent it leads even those who can’t afford luxury items to acquire them through credit. Writing in the Journal of Consumer Research, Marsha L. Richins concluded:

“Materialists are more likely to overspend and have credit problems, possibly because they believe that acquisitions will increase their happiness and change their lives in meaningful ways.”

This mindset doesn’t come from nowhere. Other researchers have shown the mere desire for items can be sufficient fulfilment. But again, this only shows us luxury goods not necessary ones.

What is necessary?

How then do we judge necessity when there is a heavy price tag? A good way is to consider a common, but fairly expensive item: cars. According to recent data, used BMW 1 Series from 2012 was the fastest selling car in the UK, in August. The car has proved reliable, safe and fairly recent. However, it’s not so recent that it’s priced at an exorbitant amount but not so old the technology is out of date.

Consumers are not looking for cars with parts that are difficult to acquire. Considering how quickly car technology advances, people also want safety as priority and fewer cars are safer than BMWs. The point is, cars are a necessity and consumers can make smart decisions to acquire the best one – without it being seen as an indulgence. Indeed, though it is a BMW, no one’s first thought when hearing about a used 2012 car is that it is a luxury vehicle.

The contrast here is that we are putting necessity above material desire, but still able to compromise for both. This is possible on all manner of purchasing choices. Everyone – whether seller or buyer – must keep this in mind as we enter an increasingly difficult financial future.