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7 Reasons to Teach Young People About Finance – Today

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Are you considering teaching your children about money, but aren’t sure how? Are you going to wait to teach your children about money until they’re older? Considering not teaching them at all, and letting them learn on their own? Here are 7 reasons to teach young people about finance – today.

1. Financial awareness starts at an early age. Having to “un-learn” bad habits takes longer than learning good ones. Giving an allowance from a young age (even infanthood, and putting it into a savings account) rather than handing out money for specific activities allows a child to learn to save their money, rather than spend it as soon as they get it.

2. Young people given financial responsibility will often begin saving for their own education at a much younger age, reducing their reliance on student loans and/or their parents. This isn’t to say that a 6 year old will open an RESP any time soon, but middle school and high school children may start saving their allowance or working income for a post-secondary education. Anything a parent can do to increase a child’s future independence (from themselves and from credit) is definitely a good thing.

3. Teaching your children that they can make money by providing value rather than a set amount of money for a set amount of time will teach them to be entrepreneurial, increasing their possibility of future success. Instead of giving a certain amount per month or per chore, give your child marginally more money for the chores that they do that provide more value. For example, while dusting the tables and mowing the grass may take the same amount of time, unless you really like your lawn, you would probably get more value from your child cutting the grass. Give their allowance accordingly, and you’ll likely find your child doing more high-value chores voluntarily. You may also find their entrepreneurial mind blossoming at a younger age! Lemonade, anyone?

4. An increased interest in saving will mean a decreased reliance on credit in adulthood. As we all know from the credit crisis currently underway (and any news headline since 2008), reliance on credit is a bad thing. Show your kids how to save, and they might avoid the credit trap.

5. Greater awareness of the actual cost of items will increase the likelihood of achieving independence early as an adult. For many of the “boomerang kids”, they didn’t return home because they prefer the way mom washes their socks. Many adult children living with their parents are doing so because when they left home the first time, they thought they could “make it” with the income they had. When the learned the real cost of a home, vehicle, food, and bills, they couldn’t keep up and quickly went broke. Save your children from this fate. Help them discover the “costs of living” sooner, rather than later.

6. Financial knowledge will give children an increased confidence in their ability to make decisions on money matters, giving them more power in all aspects of life. You probably wonder what life would have been like if you had invested in Microsoft, or IBM, or Apple. Well now imagine your children have the ability to invest in a company like that – and they have the confidence to actually make the investment. Not only will increased financial knowledge help children with their finances, but it will help them with all other areas of their life as well.

7. The concept of saving money for a future purchase also teaches delayed gratification and self control, a quality that is valuable in many other areas of life. Saving money for a big purchase not only teaches children not to use credit as often, but also teaches them self control. Rather than getting a small payoff today, they’re willing to wait for the bigger payoff tomorrow. This principle will not only help with finances, but with education, physical fitness, and other areas.

If you’re waiting to teach your children about money, or you had decided not to teach them at all, maybe those 7 reasons will persuade you to start teaching early!

3 Ways Financial Awareness Can Help You Profit

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We all know that managing our business finances is something we’re “supposed” to do, and it does make life easier.

But are there benefits to financial awareness other than just at tax time? Of course!

Here are 3 ways that financial awareness can help you profit :

1. Advertising decisions based on ROI are more profitable than those based purely on price.

Have you ever been approached by your local phone book or newspaper to advertise? Did you? Then you understand a little bit about ROI – return on investment. In simple terms, if your ad costs more than it brings in, you got a poor ROI; if your ad brings in more than it cost you, you got a good ROI.

When you know what your expenses are, you can calculate exactly how much you can spend to acquire a new customer. That is your “magic number”. Making advertising decisions then becomes easy : if you will be able to gain a new customer for any amount at or under that magic number, you will profit. Simple!

2. Understanding your profit margin allows you to make better decisions about suppliers and vendors, as well as distribution channels and pricing.

Very few business owners can constantly concern themselves with the pricing of their suppliers and vendors, just as they can’t constantly concern themselves with sales. All areas of the business need attention, but giving attention to the financial areas can have payoffs in others as well.

For example, did you know that there are some distribution channels and wholesale pricing models that can actually cost a business more than it brings in? Or that by increasing your price by a small amount, and eliminating one unnecessary expense, you could see a drastic increase in profit?

When you know what your real costs and profit margins are, you know how to make the costs smaller and the profits larger!

3. If you understand the full cost of some optional vendors, suppliers, or services, you may choose to invest more or less in these services dependent on the value you actually receive.

Have you ever paid full colour for a newspaper ad, only to get a lower response than your regular black and white advertisement? Do you have a second fax line that you simply don’t use? Do you get amazing customer service from your internet provider, even though they cost a little bit more than the competition?

When you can see exactly how much you’re spending on items like these, it is easy to cut the expenses that aren’t giving you enough value. It also becomes easier to invest more into the expenses that do.

So you can see, financial awareness means more than just an easier tax return. When you know your full financial situation, you can make many business decisions based on that information that will increase your returns!

5 Tips for Choosing Accounting Software

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Trying to choose accounting software? With the number of choices available, it can be daunting to research. Follow these 5 tips for an easier decision!

Decide what you’ll be using it for.

Are you a one-person operation with a need to file monthly receipts? Or a multi-national conglomorate with thousands of accounts to balance and millions of dollars to manage? What you’ll be using the accounting software for will dictate which software you choose, and which features are more important.

For example, it may be more important to the one-person operation to have automatic account synchronization with the online banking system, since there is likely only one bank account to worry about. This is a handy, automatic way to manage financial data.

For the corporation, however, multi-user capabilities and security may be the highest priority.

Look at what your company needs now, and for the next 5 years. While the software itself may not stay current, many software companies provide free updates (or less expensive updates for existing users.)

Decide who will be using it.

Do you have an accounting or payroll department who is skilled in financial management software? If so, a user friendly environment may not be as important to you.

For many independent professionals and small businesses, however, the Owner – who manages most of the businesses operations in all areas – or one of the other staff members is responsible for accounting. The computer literacy and technical knowledge of this person will dictate how easy to use your software must be.

When you know where you’re going, it is far easier to get there.

What are your technical requirements?

Does your company operate their own server or intranet that hosts their information? Do you use primarily PC or Mac? Windows or Linux? Will there be a dedicated computer system, or will this be on a system used for other things as well? The answers to each of these questions will make a big difference to your purchase.

For example, a company looking to add accounting software to their receptionists Windows based notebook computer will want something that doesn’t consume too many resources to store and run, and they’ll want to ensure it is capable of operating on a Windows based PC.

A company with a dedicated Mac system for their accounting software will have no concern for space requirements, but a big concern for capability – will the software they choose be available for a Mac system?

What features do each solution offer?

Now that we’ve determined what features you need for your company, the user, and the environment it will be operating in, take a look at your software choices.

For example, imagine you are a freelance graphic designer. You are a single person company, and need to manage your incoming and outgoing cash flow. You run a Mac system, as most graphic designers do, and it is the computer you use for everything. You have a high level of technical knowledge with computers, but little knowledge of accounting software.

You may want to look for a solution that has a very simple interface, automatically synchronizes with your bank’s online banking system, will work on an Apple computer, and uses very little in the way of resources and storage.

Weigh the cost, and decide.

You have likely selected 1-3 choices based on the features you need. If you’ve already made your decision, congratulations! If you haven’t, now is the time to weigh the cost of the solutions you have selected against the features you need. Is there a less expensive solution that does what you need, without the bells and whistles? Is it worth losing a few crucial features to save a few dollars? Only you can decide.

Following those 5 tips, you should be able to easily choose the accounting software that is right for you!

3 Steps to Simpler Small Business Finance

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Want to simplify your small business finance? Here are three steps anyone can take to spend less time managing your money, and more time making it!

Step One : Start managing now.

Some small businesses startup with the idea that they can “worry about money when they make some.” Occasionally, that works out perfectly. More often than not, it ends in a pile of unfiled receipts and uncontrollable hair loss every April.

The key to financial simplicity is to manage your money before you even have any. Get your accounting software setup, create file folders and bank accounts, and set policies for your finances. They don’t have to be complex – a policy as simple as “I will deposit cheques daily” or “I will file my receipts and invoices once each week” are a great way to start.

Step Two : Talk to an expert.

You wouldn’t think twice about having a used car checked by a mechanic, don’t hesitate to get the advice of an expert when setting up your company’s finances. Not only can an expert accountant help you setup the right types of accounts and systems, choose your software, and prepare reports, but they are an invaluable source of information for everyday financial situations.

Occasionally, I’ll come across a startup business who believes they can’t afford the advice of an expert. At A&A Accounting, we understand small and startup businesses. We find a flexible solution to meet the needs of your budget, and the needs of your growing organization. Don’t hesitate to call us and find out what we can do for you.

Step Three : Create a financial plan.

When you know where you’re going, it is far easier to get there. Now is the time to create a financial plan for your business. Where do you see your finances next month? In 6 months? 1 year? 10? Your calculations might not always be correct, but making them starts a conversation about money that will help you not only today, but in the months and years to come.

Sit down and write out everything you know about your business financially. What your prices and costs are, daily, weekly, monthly, and annual expenses, profit margins – anything you know about your business’ financial situation.

Then start playing with the numbers. If you cut costs in one area, do costs change in another? If you increase your investment in certain expenses, do your profits increase or decrease?

Turn these simple changes into a plan for the future. Work to save costs in certain areas, and actually lay out what the balance sheet would look like if you did. Discuss future plans, such as exit strategies/succession plans, expansion and investment now.

By following these three simple steps, you’ll be simplifying the financial future of your small business.

Don’t Believe Everything You Read

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Every day on television, in the newspaper, at bus stops and on billboards, Canadians are exposed to advertisements from banks and credit unions. We don’t really think about them when we see it… It is just another advertising message, blending in with the rest.

But is it really?

In almost every one of these advertisements, there is a “hidden message”. It isn’t actually hidden from view, but it becomes a subconscious lesson. Nearly every bank advertisement positions the bank, credit union, or financial institution as the expert – not a big deal, if you’re trusting them with your money they should be experts.

Almost every advertisement says, they are the experts – and you need their help. Finance is confusing, difficult, and hard. Saving and investing are even more difficult. Without the banks to rely on, you would never achieve any kind of financial stability.

Now, we may not notice it when we walk past the billboard or see the ad in the newspaper. We may not even actually see the ad – but it’s effects stick with us.

We feel disempowered with our own money. We can’t just “manage” our money, banks do that. We think, they are the experts, and without their guidance we’ll lose everything. We say, tt is best to leave everything about our finances to the banks.

And we lose confidence in our own ability to manage, communicate, and take part in our finances.

Now, you could say this is a conspiracy theory and they’re just out to get everyone, but we all know that simply isn’t true. The banks are good at doing one thing – making money operating a bank. To do that, they need you to use their services. So they convince you that you simply cannot do anything without them.

The truth is, you can manage your money on your own.

You can read financial reports and make investing decisions.

You can create a household budget, including a contribution to your savings, and stick with it.

You can plan for the future while managing your day-to-day financial life, all on your own.

The bank is a source of information, tools, and services that are all valuable. We should all feel empowered to use what they make available to choose our own financial path, rather than allowing them to choose it for us.

What do you think? Share in the comments!