Page 12 – Wise Investor Path

Credit score in simple terms is what it is called a score just like a common test score which defines a student’s eligibility to take admission in a university. However, this score defines a person’s credit repaying ability and his worthiness to take credit. It is an indicator for risk assessment for lenders like banks, credit card providers, mortgage companies and financial institutions. It can be understood as a number which is responsible to create a perception about you among the lenders based on which the lenders will decide to either give you credit or not.

Credit score gives an estimation about the probability that an individual would be able to pay the debt based on the credit repaying history. It acts as an excellent indicator of the risk associated with providing credit for the lending companies. In United Kingdom there is no fixed standard scale however the credit score scale used by the Experian is mostly used which is ranged 0 to 899. Where 0 to 560 is very poor, 561-720 rated poor, 721-880 is rated fair, 881-960 is considered good and 961-999 is rated excellent score.

Factors on which Credit Score depends

A good credit score represents an individual’s worthiness to get credit and ability to manage and repay the debt responsibility. Maintaining a good credit score can hence increase the chances to get credit from any lender as the lenders see you as risk free credit seeker. The task of maintaining a credit score becomes if you actually what are the driving factors behind your credit score.

Let us discuss these factors in detail and try to get a basic understanding of them:

Payment History: Your historical payment pattern is a dominating factor in evaluating your credit score. Less number of payment defaults for your previous debt means lesser risk involved for the lenders to give you credit again. If you have made payments on time in past for your debt no creditor will think twice to give you credit again as you would be having an amazing credit score.

Credit Utilisation ratio: It is just what it is called that is a ratio between how much credit you have used and how much credit is available to you. A very high credit ratio indicates that there might be a possible financial difficulty with the individual which in turn indicates a greater risk of default in repaying the credit. Most people think that shuffling credit between various credit cards can do the trick but it actually further lowers the credit score as the amount of credit taken out of total credit available will still be high. Credit utilisation percent below 30 is considered a good ratio for your credit score.

Length of Credit History: Lenders prefer accounts with a longer credit history because a longer credit history indicates better interest earning chances. No one is looking to lend you money if you are not generating money for them by paying them interest hence it is better to gradually paying off your debt. It is simple math a lender will earn more interest if you pay off the credit in a longer duration. So, the earning prospects are better in an account which has a longer credit history.

Credit Mix: Credit mix means mixing various kinds of credit for your financial needs like credit cards, loans, mortgages etc. But credit must be taken responsibly and refrain from creating accounts without any actual requirement for credit. A diverse credit mix indicates good credit management behaviour.

New credit Applications: It is an easy to miss factor but it is important factor as it indicates how frequently an individual needs credit and more frequent credit needs means poor finance management skills on a personal level. Also, every time you are applying for credit a hard inquiry is actually done from the credit bureaus which can reduce your credit score. That is the reason why we should always apply for credit when we actually need it.

Public records: Any negative public record on your name can considerably damage your credit score as it is quite obvious that no one would want to give credit to an individual who is having any negative record like bankruptcies, tax liens, foreclosures etc. Any such record will put you in a high default risk zone and will stay on your credit report for many years. It is a must to maintain a good public record.

Strategy to maintain a good credit score

Effective analysis of the factors that affect your credit can help you in managing your credit score. All it takes careful monitoring and a consistency in payments. Let us discuss what you should do strategically to improve your credit score. You do not have to be a mathematician or a scientist and go through complex calculations to increase your credit score. You should understand that your credit score is actually a perception which is created by the numerical value among the lending institutions. So, all we have to do is work on the factors on which the credit score depends consistently and it will increase in time.

It is critically important to check your credit reports regularly so that you can find any irregularities in them. To increase your score, your reports should match with the transactions that you have taken or paid. Once you are done with the checking part you must make sure that you are making payments on time and are not missing even a single payment. Try to keep the credit utilization percentage below 30 percent as indicates healthy financial state. Keep old accounts active and avoid opening new accounts or applying for credit frequently. Try to distribute the credit in credit cards, loans and mortgages to generate a diverse credit mix. You should be consistent in doing all the things we have discussed and you will see with time your credit score will increase.

So be consistent and stay planned in order to increase your credit score.

Investment banking is specialised aspect of banking aimed at raising money for high-net-worth individuals, massive corporations and even governments. Investment banks basically acts as an intermediator between corporations and investors for mergers and acquisitions, underwriting for new IPOs, they even provide financial consulting to large corporations regarding their new investment ventures by doing risk analysis and financial modelling. Investment bankers often handles the finances of ultra rich individuals and make sure that their money is invested efficiently to assure returns.

In United Kingdom the major players in the investment banking sector are HSBS, Barclays, Goldman Sachs, J.P Morgan, Morgan Stanley etc. They provide services like Mergers and Acquisitions, raising capital, quantitative analysis and trading, risk analysis, finance advisory etc. to make sure that the money making never stop for their clients.

Recent trends in the Investment Banking Landscape

The most prominent trend that has been observed in the Investment Banking domain is the tremendous increase in Mergers and Acquisitions which can be attributed to the recent tech revolution. The requirement of mergers and acquisitions has increased between investment banking firms and major tech firms due to the amalgamation of various domains with latest technologies in artificial intelligence and digital transformation. Major players in every domain are looking to collaborate with the investment banking firms may it be healthcare, ecommerce, entertainment, supply chain etc.

Inclusion of ESG (Environmental, Social and Governance) considerations is another emerging trend in the Investment Banking sector as due to the increase in awareness about climate change and social inequality the investors seek more accountability, transparency and social responsibility from the investments firms. As a result, inclusion of ESG factors is more or less a mandatory requirement these days.

What they do?

Investment banking offers a plethora of services like finance advisory, Capital markets, Underwriting and syndication, Sales and Trading, Risk management and hedging, Regulatory compliance, Structured Finance and securitization etc. These all services are focused on one goal capital raising which just means making money.

Investment Banking just doesn’t play an important role in moving the capital markets it moves the whole economy of a nation. Corporations pay tons of money for these services as there sustainability and profitability depends fundamentally on how much capital and they can raise and how well their decisions are made to either buy or sell their shares. Risk analysis and hedging services makes sure that the trade that any individual or organization is getting is at the minimum risk and have a high probability of making profits in near future.

In very layman terms it is basically the business of enabling the corporations and the high-net-worth individuals make more money with their capital and if you are someone that can facilitate that, congratulations you are on your way to make a fortune for yourself.

How to break into this sector?

Investment Banking is the go-to domain for individuals with good finance knowledge, data analysis skills and deal making abilities. There are plenty of direct and indirect ways in which anyone can leverage these skills to make either a career or a successful business in this elite domain.

Let’s discuss some these ways in which you can break into this niche and earn a lot of money using the skill set required:

Career in Investment Banking: If you have decent knowledge about finance domain along with the skills to analyse data and ability to crack lucrative can make a very handsome salary and earn huge incentives by being an investment banker and work for a prestigious investment banking firm.

Entrepreneurship: If you are someone from the Investment Banking background and some years of experience under your belt than you can start your own venture providing the investment banking facilities like merger and acquisition services, capital raising for start-ups, technical analysis services etc. to help the businesses and the individuals raise capital and earn huge profits from it.

Consulting: Investment Bankers have an in-depth knowledge about the corporate finance, mergers and acquisitions, financial restructuring and capital markets. This knowledge is actually a VIP pass to the financial consulting realm where you can consult corporations, financial institutions, private equity firms providing consultation for financial modelling, financial valuation and capital allocation.

Investing and Trading: To be honest every literate individual is familiar with the glamour of the investing and trading domain. If you have the knowledge financial markets, asset classes and have the analytic ability to understand and extrapolate patterns in shares, derivatives, futures and options you can create your portfolio, do trading in stocks, futures and options to generate amazing returns on your investments.

Content creation: In the present age of digital media individuals with thorough knowledge of finance domain, analytics skills and clear understanding about the market trends can monetize their knowledge through blogs, podcasts, videos or social media. This can serve as endless source of passive income if you know about three things finance domain, data analysis, and digital marketing. These three skills can make you financially independent in no time at a very young age.

Quantitative analysis: If you are someone who is gifted with the curiosity and drive and have the mathematical ability to analyse shares, futures and options you can combine this skill set with the knowledge of coding and can become quantitative analyst for major hedge fund companies and algorithmic trading firms. This is the most sought-after skill in the finance domain and people with these skills are easily making millions in a year just as salary. The field is tough but the rewards are worth the effort.

There are endless possibilities in the Investment Banking domain as it is one of the most elite domains to work. Every Investment banking firm is willing to spend millions for the right talent as it is the Investment Bankers who do the heavy lifting in these expensive deals among the corporations. If you are controlling the flow of money, you are controlling world around you. Your perseverance and intellect can take anywhere in any field. So, keep learning and keep exploring.

Financial wellness is achieved when you are able to effectively manage your financial resources, efficiently control your expenses, accurately plan for future and precisely invest your money in accordance with your financial goals. It seems a difficult task but with the help of proper understanding and application of simple deductions you can achieve this goal of becoming financially stable. The understanding of these fundamentals you will be ready to plan, execute and monitor your personal financial strategy.

Let us discuss some simple steps that you can easily manage yourself regarding budgeting your expenses.

Create a Budget: Creating a budget literally means quantifying your expenses against your income. This might seem like a mathematician’s job to you. But it can simply be done by just differentiating your monthly expenses in to two columns. First column should be fixed expenses which you cannot avoid and second column should be variable expenses which you can control.
Allocating Funds: This is the part which takes commitment and dedication. As you would be allocating the funds which is basically your income to the categories of expenses each month in accordance with your financial goals. The most common thumb rule used is 50/30/20 rule which means that you should allocate 50 percent towards your mandatory expenses, 30 percent towards saving goals and 20 percent towards your emergencies.
Tracking your spending: Once you have created a budget, allocated funds as per the requirements of your budget the next logical step is to track how well you are performing. You can use basic tools like Microsoft excel or google sheets to maintain the data monthly and review it after three months to track how well you are doing in terms of your budgeting. As it is an obvious fact you can only control the deviations in your budget if you have tracked which expenses are exceeding it.
Plan for irregular expenses: It is nearly impossible to predict the emergencies but still we can plan for at least the possible irregular expenses like car maintenance, yearly insurance costs or even yearly vacations because if we are planning to take these benefits, we must be ready to plan for the costs associated with them as well.
Follow PDCA: PDCA refers to the cyclic implementation of plan, do, check and act in the same order as mentioned. It will give you a clear view how effective is your planning and how much efficient you are in the execution. You can definitely take the advantage of this problem-solving tool to solve the ultimate problem that is managing your money. In the plan phase you can plan your budget, the second phase will be the fund allocation part, then comes the third part check which will include the monitoring your adherence with the budget and last part will be to act to adjust the deviations that you have observed with your expenses.

Savings are the true saviour in the tough times and regardless of the background everyone should save some amount of their income to be prepared for the uncertain times. Once the habit of saving is developed you will notice the wonders that you can do just merely with your income. But you must be dedicated and disciplined. Let us walk you through how you can design a savings plan for yourself and can achieve your financial goals.

Set clear goals: Your goals must be specific, quantified and time bound so that you have a crystal-clear idea about each of these aspect about your goal. It can be anything ranging from an early retirement to buying a house to creating a gigantic investment portfolio in the stock market. Take notes being clear about your goals is the key.

Increase your income: This is the rule that only a small percentage of people in the entire world follow. No matter how excellent you are in cutting down your costs you will always find it tough to cope up with the increase in inflation rate each year. So, the key here is to increase your revenue streams so that even a small contribution from each of those income streams will combine and create a decent amount for your savings monthly.

Create a budget: You might be wondering why is this repeating again in the same blog. No matter how much income you have if you do not have a clear idea about your expenses you will end up spending your hard-earned money on the things that you do not need. Creating a budget helps you not only in differentiating fixed expenses and variable expenses but it also gives you a sense of clearly differentiating what you want and what you need.

Start small and track your progress: You do not need to dedicate a large part of your income towards savings you should instead start small and then gradually increase the amount each month. It has to be sustainable because only then you would be able to maintain the discipline for the desired time. Tracking your savings every month will give a clear idea when you went off the track and you will be able to work on the reasons why you went off the track in your savings journey.

Emergency funds and investment plans: There should be defined amount that should be dedicated each month towards the emergency funds so that your financial planning will not go for a toss in case of any emergency. You must also keep in mind that you should save a dedicated amount so that you would be able to put that money to work for you. So, you must dedicate some amount towards your future investment purposes. As an old saying goes there nothing better than watching your investment grow.

These all strategies and planning will only work if you are consistent and disciplined towards your planning and financial goals. Rome was not built in a day. It is easier to plan but execution takes an unwavering commitment. Remember these are your goals so the responsibility is yours only.

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