In absolute terms, global debt exceeded $324 trillion in early 2025, up from around $255 trillion in 2019. This massive debt overhang threatens to undercut every economy’s ability to withstand the latest headwinds, including a return to protectionism in the form of higher trade tariffs. Without urgent course correction, the world could be headed toward a widespread debt crisis with lasting economic and social repercussions.

Global debt overhang and its risks

World Bank Chief Economist Indermit Gill notes that debt is a powerful tool for growth and stability, yet it is also “a form of deferred taxation.”

By borrowing instead of immediately raising taxes, governments can finance long-term investments that benefit future generations or support incomes during a downturn when austerity would be counterproductive.

This strategy makes sense as long as economic growth outpaces the cost of borrowing. Eventually, however, the piper must be paid. If a country’s income does not grow faster than its interest payments, taxes, or inflation, it will inevitably have to increase to service the debt.

In other words, today’s debt is simply tomorrow’s taxes by another name. Persistently high debt, without commensurate growth, thus becomes a drag on development, a barrier to economic progress that grows taller with each passing year of heavy borrowing.

That barrier has seldom been higher than it is now. Over the past 15 years, developing countries have become hooked on debt, accumulating liabilities at a record pace of roughly six percentage points of GDP per year. This debt binge was fuelled by years of ultra-low global interest rates and often justified by optimistic growth projections.

History shows that such rapid debt build-ups often end in tears. Indeed, research indicates that about half of large debt booms in emerging and developing economies have been followed by financial crises. In effect, the odds that the recent developing-country debt surge will trigger a crisis somewhere are roughly 50-50.

With global debt levels at all-time highs, the world is precariously balanced on what Gill calls a “debt time bomb.” Each additional shock, whether economic, geopolitical, or climatic, increases the chances of a detonation.

In May 2025, the International Monetary Fund (IMF) stated that the global public debt could increase to 100% of global GDP by the end of the decade if current trends continue.

According to the IMF report, “The rising ratio of public debt to GDP reflects renewed economic pressures as well as the consequences of pandemic-related fiscal support.”

“This trend raises fresh concerns about long-term fiscal sustainability as many countries face rising budget challenges,” the global monetary body remarked.

The report indicated that approximately one-third of countries, representing 80% of global GDP, now have public debt levels exceeding those recorded prior to the COVID-19 pandemic and are increasing at a faster rate. More than two-thirds of the 175 economies examined in the IMF’s study are carrying heavier public debt burdens compared to the period before the pandemic began in 2020.

In March 2025, the United Nations Trade and Development (UNCTAD) noted soaring interest payments were squeezing budgets, forcing governments to choose between repaying creditors and funding essential services.

“Developing countries are sinking deeper into a debt-driven development crisis. Their external debt, money owed to foreign creditors, has quadrupled in two decades to a record $11.4 trillion in 2023, equivalent to 99% of their export earnings. A mix of factors has fuelled this surge, including increased borrowing for development projects, volatile commodity prices, and widening public deficits. The COVID-19 pandemic worsened the situation, as countries borrowed heavily to offset the economic fallout and fund public health measures,” UNCTAD added.

While debt can be a vital tool for economic growth and development, it becomes a problem when repayment costs outpace a country’s capacity to pay. That is now the case for two-thirds of developing countries. Debt distress now looms over more than half of the 68 low-income countries eligible for the IMF’s Poverty Reduction and Growth Trust, more than double the number in 2015.

Rising interest rates

Exacerbating the danger, the latest debt surge has been accompanied by the fastest increase in global interest rates in four decades. After a long era of cheap money, central banks worldwide applied the monetary brakes in 2022 and 2023 to combat inflation.

The result has been a sharp spike in borrowing costs, as interest rates Monjumped multiple percentage points within months, the steepest rise since the early 1980s. For about half of all developing economies, debt servicing costs have essentially doubled in a short span. On average, the interest payments on government debt in developing countries rose from under 9% of government revenues in 2007 to about 20% of revenues by 2024.

Such a surge in debt service burdens would be daunting even in good times. Amid today’s challenges, it verges on the catastrophic. By 2024, many governments were spending one-fifth of their budgets just to pay interest, resources no longer available for public investments or essential services.

Although the world has so far averted a systemic financial meltdown of the kind seen in 2008 and 2009, too many developing countries are now caught in a “doom loop” of debt and underinvestment. To service their loans, governments are cutting back on the very spending that would boost future growth, slashing funding for education, healthcare, and infrastructure.

This self-defeating cycle undermines human development and erodes the productive capacity needed to escape from debt. Alarmingly, this is not a problem confined to a few outliers; it has become a widespread phenomenon.

Almost half of humanity, about 3.3 billion people, now live in countries that spend more on interest payments than on health or education. In low-income countries, especially, scarce fiscal resources that should be used to build schools, clinics, or roads are instead absorbed by creditors. It is a vicious circle: high debt forces spending cuts, which strangulate growth, which in turn makes the debt even harder to bear.

Debt threat to future workforce

Nowhere is this doom loop more troubling than in the world’s poorest nations. Some 78 low-income countries eligible to borrow from the World Bank’s International Development Association (IDA) are teetering on the brink of a debt disaster. These countries are home to roughly one-quarter of the world’s population, and include a large share of the 1.2 billion young people poised to enter the global workforce in the next 10 to 15 years.

The future of the global labour market, and of these nations’ development, depends on whether this youth bulge can be educated, healthy, and productively employed. Yet high debt threatens to derail that potential. Saddled with onerous debt service, many of these countries cannot invest adequately in their burgeoning young populations.

The result could be a lost generation, where millions of youths are deprived of quality schooling, healthcare, and jobs, sowing the seeds for frustration and instability down the line.

Policymakers, unfortunately, have so far responded with complacency or denial. In what Gill describes as “another triumph of hope over experience,” many governments are effectively gambling that a favourable global environment will somehow rescue them from the debt trap. They bank on global growth suddenly accelerating and interest rates falling just enough to defuse the debt bomb. But counting on a lucky break is a perilous strategy.

In reality, most of these countries are already in deep trouble by any objective measure. According to the IMF, about 60% of low-income countries are now either in debt distress or at high risk of debt distress.

Several have already defaulted or are seeking restructuring of their debts in the wake of the pandemic and other shocks. The world cannot afford another decade of drift and denial on this issue, as the costs in foregone development and human suffering would be staggering.

Low growth, high borrowing costs

If anything, the broader global outlook is making debt burdens harder to manage. Escalating geopolitical tensions and current trade wars, marked by increased tariffs and protectionist measures, have further darkened the economic outlook. Business confidence has been undermined by record levels of policy uncertainty in international trade.

At the start of 2025, private economists expected about 2.6% global GDP growth for the year, but as new data and conflicts emerged, the consensus forecast was downgraded to roughly 2.2%. That is nearly one-third below the average growth rate of the 2010s.

The World Bank likewise projects a significant growth slowdown in 2025 compared to prior estimates. Slower growth directly translates into lower revenues for governments and fewer job opportunities, making it even harder for heavily indebted countries to grow their way out of debt.

At the same time, borrowing costs are expected to remain far higher than they were in the last decade. In advanced economies, central banks have indicated that policy interest rates will average around 3.4% in 2025 and 2026, a level more than five times the ultra-low average that prevailed from 2010 to 2019.

In the United States, for example, the Federal Reserve raised its benchmark rate by over five percentage points in 14 months, the most aggressive tightening in over 40 years. Such moves, echoed by other major central banks, have ended the era of near-zero rates.

For developing economies, the consequences are painful, as higher global rates push up the cost of new financing and often strengthen the US dollar, making dollar-denominated debts harder to repay. In an era of scarce public resources, boosting growth and development will require mobilising private investment, yet foreign capital is unlikely to flow into countries perceived as debt-crippled and low-growth.

Prioritising debt reduction

Given these realities, reducing debt levels is an urgent priority, especially for developing economies with chronically high debt-to-GDP ratios. This must start with responsible national policies, as governments should rein in excessive borrowing and improve their fiscal balances where possible to stabilise debt dynamics.

Some may need to make painful but necessary adjustments to curb non-essential spending and boost domestic revenue. However, the challenge is too large for individual countries to solve alone, especially when many are already insolvent or nearly so.

What is needed is a systemic solution. The global financial community must come together to upgrade the apparatus for assessing debt sustainability and handling debt distress. The current international system for sovereign debt restructuring is widely seen as inadequate, being too slow, too fragmented, and too biased toward kicking the can down the road.

All too often, official lenders and institutions opt to extend new “bridge” loans to tide countries over, when in fact many low-income countries require outright debt write-offs to restore solvency. Procrastination through serial lending ultimately serves neither debtor nor creditor if a country’s debt is unsustainable.

Recent trends underscore the scale of the problem. The number of countries facing high debt levels has jumped dramatically, from 22 countries in 2011 to 59 countries in 2022. As of last count, 52 developing countries, nearly 40% of the developing world, are in serious debt trouble, meaning they either are already in default or face severe financial stress.

Yet progress on mechanisms such as the G20 Common Framework for debt treatment has been disappointingly slow, hampered by coordination problems among traditional creditors, newer lenders, and private bondholders.

To prevent a lost decade for development, the world needs a more streamlined and swifter process for restructuring unsustainable debts. This could involve tougher assessments to distinguish liquidity problems from true insolvency, and bolder action to write down debts that cannot reasonably be repaid without strangling a country’s future.

Returning to prudent debt levels

As the saying goes, when you find yourself in a hole, the first step is to stop digging. The world’s borrowing binge must come to an end. The era of extraordinarily low interest rates that once tempted many countries to live beyond their means is over.

Over the last five years, a series of unprecedented crises, both natural and man-made, made heavy borrowing unavoidable in some cases, as governments acted to cushion their people from harm. Now, however, a return to prudence is essential. Policymakers should re-embrace clear fiscal limits and revert to earlier norms of what constitutes excessive sovereign debt.

One sensible guideline is what Gill calls the “40-60 maximum,” roughly 40% of GDP as an upper debt limit for low-income countries, and 60% of GDP for high-income countries. Middle-income economies would fall somewhere in between those benchmarks.

While these ratios are not necessarily strict thresholds, they hark back to long-standing debt targets, for example, the 60% debt-to-GDP limit in the European Union’s fiscal rules, which were associated with greater stability. Adhering to such limits would give countries more fiscal space to handle shocks and invest in development, instead of constantly teetering on the edge of default.

The looming global debt disaster is not inevitable. It is a man-made crisis, and it can be solved with decisive action. Reining in debt and reigniting growth are difficult tasks, but the alternative is far worse. Without corrective measures, persistently high debt will continue to stall economic progress and heighten the risk of financial crises.

By contrast, a combination of debt relief, sound fiscal management, and growth-enhancing reforms can gradually defuse the debt bomb. The world has arrived at a critical juncture. Having deferred the costs of debt for years, governments and international institutions must now confront them.

The next generation’s prosperity depends on choices made today, on the willingness to restore fiscal discipline, revamp the global debt architecture, and unleash the productive potential of open markets and private enterprise.

The window to act is narrowing, but with clarity of purpose and collective resolve, a global debt disaster can be averted. The lesson of recent years is clear. We can no longer afford another decade of denial and delay on sovereign debt. The time to pay the piper, and to chart a sustainable path forward, is now.

The post Averting the global debt crisis appeared first on International Finance.

The frequency with which the topic is brought up at high-level conferences is one indicator of how concerned international policymakers are about the extraordinary rise in global debt. It also comes up almost every week. In April 2024, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told the Atlantic Council that she was concerned the current decade would be regarded as “the turbulent 20s.”

Across the world, the primary topic of discussion is debt, which is undoubtedly rising every day. The figures provide cause for concern. Gross borrowing for the 38 member countries that make up the so-called OECD region increased by precisely $2 trillion in 2023, from $12.1 trillion to $14.1 trillion. It will worsen: the OECD projects an additional $1.7 trillion increase in 2024. Even while the United States was the main offender, borrowing almost two-thirds of the $14.1 trillion in 2023, it is evident that this puts pressure on the global debt markets, whose ability to issue debt is limited.

Currently, there is a significant amount of debt in the markets. It is expected that the total borrowings, known as “outstanding marketable debt,” for 38 governments will reach $56 trillion by 2024. If that figure is striking, consider that it has increased by $16 trillion in just the last five years. This will mark a record level of debt.

The average debt-to-GDP ratio is likewise abnormal, which is possibly much more worrisome. From 73% in pre-COVID to roughly 83% in 2023, it has increased in real pre-inflation terms. And by the end of 2024, it will undoubtedly have increased. Meanwhile, interest rates are getting close to 3% of GDP, making new borrowing more expensive.

Pouring in more trillions

The performance of emerging markets is suffering. In 2023 alone, around $1 trillion more in sovereign bonds were issued in the so-called EMDEs (emerging market and developing economy) countries, bringing the total to $3.9 trillion.

China has a strong and quickly expanding appetite for this type of debt, even though it is hardly an EMDE. It now accounts for 37% of emerging nations’ bonds, up from 15% in 2021. Many issuers, both inside and outside of China, are alarmed by that figure.

It should come as no surprise that EMDEs borrow more against less because their economies are not expanding quickly enough, their credit ratings are declining, and the cost of debt is rising in tandem. According to the OECD, there were at least 24 downgrades and six upgrades in the group of low-income and lower-middle-income countries, which includes about 130 countries with an average per capita GDP of $12,300.

The unfavourable outcome is that the amount of outstanding governmental debt has increased to previously unheard-of proportions. Even though longer payback periods and inflation appear to improve these ratios, the debt still requires repayment. For many countries, it represents an imminent threat.

The makeup of the debt is just as important as its amount. The United States, the largest economy in the world, could have to refinance at least a third of its public debt by 2024, according to the OECD’s annual analysis of global debt. That is a minor issue of $11.3 trillion. The US Treasury will undoubtedly be in charge of the effort, but as the economic advocacy group Peter G. Peterson Foundation notes, it amounts to around $103,000 for each and every American.

According to the foundation, the cost of an ageing population, underfunded services, and other long-term contributing factors are some of the reasons why America’s debt load has been increasing for years: “a mismatch between spending and revenues.” The United States can at least bear its debt.

The OECD observes that “decisions on debt composition become even more intricate in emerging markets.” The Paris-based organisation characterises this as “exposure to fluctuations in global risk sentiment in an increasingly shock-prone world,” which is the reason they must deal with rising volatility.

IMF Deputy Managing Director Gita Gopinath is another policymaker who has often expressed her concerns. At a Washington conference titled Fiscal Policy in an Era of High Debt in late 2023, Gopinath presented concerning statistics regarding the long-term and rapidly rising levels of government debt. Global public debt has tripled since the mid-1970s and accounts 92% of GDP in 2022. Therefore, debt levels had been increasing for a while.

“Rising deficits and debts in countries such as the US have serious ramifications for emerging and developing economies, which are hit by rising rates and weaker currencies,” Gita Gopinath said, in sobering economic terms, presenting a grim picture, particularly for economically weaker nations. Additionally, many economies are already experiencing debt hardship, especially low-income nations.

Fractured fiscal rules

The old, more convenient regulations have been broken for several reasons, which is one of the numerous challenges involved with lowering global debt. One is the global financial crisis (GFC) of 2008, which overnight resulted in previously unheard-of amounts of quantitative easing, whereby central banks printed money and lent it to the financial sector at extremely low interest rates to support them.

Another issue is that, despite having their own fiscal policies, most countries are finding it increasingly challenging to adhere to them and are resorting to debt issuance to sustain economic activity. The OECD laments the “frequent deviations from the rules.” Since the GFC, few have managed to control their debt.

More discipline, supported by a form of fiscal police, is the OECD’s suggested remedy.

The OECD suggests, “We need rules anchored on spending targets that respond to shocks and have clear mechanisms to correct for non-compliance.”

Independent fiscal councils can also strengthen checks and balances.

Others, meanwhile, believe that a new form of economics is required. Atif Mian, a professor of economics, public policy, and finance at Princeton University, cautions that relying on credit to increase demand endangers the global economy and that the fundamental imbalances must be fixed.

However, until then, we have what he refers to as “a massive debt supercycle that threatens the global economy.” He continues by advocating for a “long-term balance between what people earn and what they spend” in an article published in the esteemed Finance & Development journal. One of the 21st century’s most urgent concerns is to break that loop.

Nevertheless, habits must shift before that may occur. The US and other mostly prosperous countries have made government (or sovereign) borrowing all but mandatory. Additionally, citizens who expected ongoing generosity from a country that could barely afford it criticised governments like Britain for using “austerity economics” when they attempted to lower their debt in the wake of the Great Financial Crisis. When the Macron administration tries to follow other countries and gradually raise the pension payout age, France is running into the same issues—riotous protests, in fact—which are slowly destroying the entire economy.

Accumulation of debt

Debt binges have been increasing for more than fifty years, beginning when the effects of the Great Depression started to subside. For instance, the United States’ overall debt more than doubled to 300% of GDP after hovering at 140% of GDP between 1960 and 1980. The American example has also served as a lesson to the rest of the globe.

According to Professor Mian, “Debt’s unrelenting upward trajectory could not be stopped, not even by the Great Recession of 2008 (the outcome of the GFC), which was largely caused by excessive borrowing.”

It would be incorrect to assume that 2008 was just the result of a few regrettable policy errors. Deep structural imbalances in the economy were the cause of the debt accumulation that precipitated the 2008 crisis. Both those inequalities and the risks they pose continue to exist.

However, what is the source of this hazardous imbalance and excessive debt? Most scholars agree that, ironically, the surplus savings of wealthy individuals and nations are a major underlying cause of economic issues. It is undeniable that the wealthy are growing increasingly richer, a trend that has persisted throughout history.

For nearly 40 years, the wealthiest 1% of people have been accumulating wealth at an accelerating rate, with many benefiting significantly from the digital boom. Thus, some nations have become richer than others, most notably China, whose growing wealth is invested far more in local banks and other savings institutions than in affluent Western countries. They each assert a disproportionately larger amount of the world’s revenue, which leads to financial surpluses that feed the “global debt supercycle.”

Regrettably, due to the banking sector’s failure to meet its objectives, a significant portion of this debt tsunami is being misdirected. A healthy financial sector would direct financial surpluses toward productive investments, like constructing and maintaining infrastructure and developing technology. Since investment returns would cover any debt resulting from such productive lending, it would be organically sustainable.

Mian continues, “The debt supercycle’s inability to fund profitable investment is regrettably one of its main characteristics. Real investment as a percentage of GDP has stagnated or even decreased during the past forty years, despite the fact that total debt as a percentage of GDP has more than doubled. The worrying conclusion is that we are wasting around half of the trillions of dollars in new debt issued in the last two years. Rather than funding investments that might contribute to wealth creation, it has instead been used to finance governments’ and consumers’ wasteful spending.”

Naturally, only falling interest rates fuel this cycle. Long-term memory holders will recall that the US 10-year real interest rate was approximately 7% in the early 1980s. It has recently fallen as low as below zero. Ordinary people are encouraged to spend rather than save as high rates enter the consumer finance system.

Handling crises

Debt-related catastrophes have occurred behind the scenes, virtually invisible to the public.

Central banks, which are responsible for maintaining financial stability, have had to control disruptions in the quickly expanding non-bank financial sector that could have had disastrous repercussions if they had spread more broadly. Only skilful and mostly anonymous crisis management prevented the worst.

In a recent lecture, Nick Butt, head of the Bank of England’s future balance sheet branch, says that “these non-bank institutions have grown in significance across a range of markets, including those that households, businesses, and governments use to borrow, save, or access financial services.”

About half of all UK financial assets, including corporate loans, have been acquired by non-bank institutions in the last 20 years, essentially from a standing start. Similar events have occurred in other European nations, posing yet another risk to the stability of the financial system.

Why? The reason for this is that non-banks often utilise the gilt repo market and maintain substantial holdings of gilts, also known as sovereign bonds, both domestically in Britain and internationally. The Bank of England buys and sells gilt-edged securities here, albeit few outside of the financial community are aware of how it operates.

Established in 1996, this massive market witnesses billions of transactions daily to maintain the liquidity of the banking system. As other central banks have noted, Butt asserts that the impact of the rise of non-banks is far from theoretical. They have created new weaknesses and sources of liquidity risk that have an all too real potential to cause financial instability and have an effect on the broader economy.

Some may argue that the current situation is more actual than prospective. During the COVID lockdowns, the UK government’s bond markets experienced a sharp decline in March 2020 due to a widespread rush for short-dated, cash-like securities. As banks of all kinds tried to fulfil their own liquidity commitments, there was a rush for cash throughout the financial industry. To support the central bank, the major dealer banks contributed almost £50 billion through the gilt market, but it was insufficient, illustrating the anxiety that permeates a heavily indebted economy.

The money markets managed to survive the crisis, despite the pressure. Two years later, Britain experienced another crisis immediately following the abrupt “go-for-growth” economic policy of the short-lived prime minister Liz Truss. This time, the long-dated gilt market was particularly affected, revealing what Butt referred to as “vulnerabilities in liability-driven investment funds” that threatened the nation’s financial stability.

Liquidity is crucial, particularly when non-banks receive the dreaded margin call, and their own creditors become alarmed. Central banks and international authorities are currently making significant efforts to close these gaps before they become too large.

Twenty years ago, the US Federal Reserve, the Bank of England, and other major institutions faced a simpler time, when they only had to worry about the large retail and investment banks, and the world’s debt levels were lower.

Responsible titans of banking

Positively, the majority of large, systemic banks around the world are safer now than they were before the Great Financial Crisis. They have greater capital, the funds that are first in line to absorb losses, and are better positioned to safeguard depositors as a result of the lending excesses made public by that crisis. Although there are regional variances, the majority of nations have implemented the rules created by the Bank for International Settlements, and international regulators are now considerably more at ease with the financial industry’s titans.

The United States, which is meant to be the land of regulation, experienced three bank failures in early 2023 alone: Silicon Valley Bank, Signature Bank, and First Republic. Meanwhile, the Swiss government needed to save the once-dominant Credit Suisse before it collapsed. The Swiss government planned for rival UBS to purchase the bank for $3.25 billion in June 2023 after a quagmire of poor regulation and incompetent management.

There are worries that a much-feared run on social media will increase the likelihood of bank failures. Prominent European bankers conducted a provocative study that suggests “the sudden withdrawal of bank deposits, celebrated by digital technology, contributed to the failures of these banks,” highlighting the rapid spread of misinformation.

According to the report, “social media and mobile banking apps were unheard of or barely existed” during the catastrophic bank runs that preceded the Great Financial Crisis.

What’s next?

The tightrope act calls for a gradual reduction in global debt and much more prudent investment, that is, in areas of the economy that will provide the proper growth. The majority of economists still support GDP, but they do it in a more sophisticated and nuanced manner that emphasises what is best for both people and the environment.

In summary, this represents significant progress. However, some argue that the usefulness of growth, particularly debt-funded growth, has outlived itself. The “degrowth lobby,” led by Greta Thunberg, contends that living standards are currently adequate and that modern capitalism has been mistaken in concentrating on GDP.

Academic circles do not widely accept the concept that “good growth” improves lives. But as the 10th edition of this insightful study, the IMF’s most recent World Happiness Report, demonstrates, economic growth isn’t everything. Indeed, some of the happiest countries are the poorest.

“It is evident that, although GDP per capita is a strong predictor of happiness, it is not the only element when we compare it with the report’s happiness rankings. Additional factors, including life expectancy, social support, independence, charity, and the lack of corruption, also contribute to the explanation of the disparities in happiness among nations,” the report stated.

In other words, the relationship between GDP and behaviour is significant. For this reason, despite having a GDP per capita of only $20,000, Costa Rica, which is well-known for its economic philosophy of la pura vida, which aims to consider everyone’s well-being, ranks a high 6.61 on the Happiness Index, while incredibly wealthy Singapore comes in slightly below.

Remarkably, poor countries like Guatemala (6.15 at $8,262), Nicaragua (6.26 at $5,842), and Kosovo (6.37 at $11,690) rank only below Singapore. Afghanistan, ranked lowest at 1.86, and Lebanon, ranked second at 2.39, are unlikely to trail the de-growth winners.

A strategic thinker, IMF Deputy Managing Director Gita Gopinath warns high-borrowing, wasteful countries.

“Debt-financed spending may nevertheless seem alluring in the current climate, where it is politically challenging to reduce expenditure or raise taxes. However, as borrowing costs climb sharply, that would be a serious miscalculation that would put debt on an unsustainable track. What governments can and cannot do needs to be reconsidered. The government cannot serve as the primary safety net for every unforeseen event. Additionally, revenues must match expenditures,” Gita Gopinath remarked.

The post Global debt hits breaking point appeared first on International Finance.

Although business credit cards can be a very useful tool for managing the finances of your company, there are a lot of myths about them that might make you hesitant. This article will help you understand the advantages and possible disadvantages of a business credit card if you’re an entrepreneur or small business owner.

Here are some common misconceptions regarding business credit cards and the facts you should be aware of before choosing one for your company.

I Can’t Get A Business Credit Card For My Startup

It’s a common misconception among new business owners that they need a long credit history or established credit in order to be eligible for a business credit card. Although it is true that when you apply for a business card, many banks and credit card companies check your personal credit, getting approved is still possible, even if your company is just getting started.

Cards made especially for new businesses or entrepreneurs with little business credit history are available from several credit card companies. Your company may eventually be able to establish its own credit history, but in certain situations, you may need to back the application with a personal guarantee or your own credit. To find cards that meet the needs of your startup, it’s always a good idea to do your homework and compare options.

They’re Too Expensive

Business credit cards are frequently linked to exorbitant annual fees, interest rates, and transaction costs. Particularly for startups or small businesses, there are many options with minimal or no annual fees, even though some premium business cards do have high costs.

Cash back, rewards programmes, and other perks that can offset the costs are available on a lot of business cards. Additionally, you can better manage your cash flow and steer clear of costly short-term loans by using a business credit card responsibly. Finding a card that fits your company’s spending patterns and financial requirements requires comparing several options.

My Personal Credit Card Is Just Fine

Although using your personal credit card for business expenses may seem convenient, doing so can cause misunderstandings and issues. In addition to making it more difficult to monitor your company’s finances, combining personal and business expenses may cause problems when it comes time to file taxes.

Additionally, it may be difficult for your company to get financing in the future if your personal credit card is maxed out or if your personal credit score declines. Keeping your personal and business finances separate with a separate business credit card makes financial records easier to understand and makes tax filing, accounting, and budgeting easier.

They Won’t Help Me Build Credit

It’s a common misconception among business owners that business credit cards won’t help them establish their company’s credit history. A company’s credit history is crucial for future loan applications and larger credit lines, and it can be built through responsible business credit card use.

Your business credit score can be raised by paying your bills on time, minimising your utilisation, and exhibiting sound financial practices. This will eventually make it easier for you to be eligible for better financing options with better terms. Just keep in mind that some credit card companies report to both personal and business credit bureaus, so it’s critical to make your payments on time to prevent harm to both.

They’re Too Risky

While it makes sense to be wary of taking on more debt, a business credit card can help you manage risks rather than increase them. By only charging what you can afford to pay off and avoiding carrying a balance that accrues high interest fees, you can use the card responsibly.

Additional security features like travel insurance, extended warranties, and fraud prevention can also be offered by business credit cards. Additionally, a lot of cards provide cashback or rewards for regular business purchases, which can help you save money or earn benefits that improve your bottom line.

A business credit card can be an effective tool for controlling costs and fostering the expansion of your company, provided that you practice self-control over your spending and repayment patterns.

The post Business credit cards: All you need to know appeared first on International Finance.

Two of Mynt’s co-founders, Baltsar Sahlin and Johan Obermayer were colleagues at Swedish telecom Ericsson. While the duo worked for one of the biggest European telecom companies, they realised that when it comes to providing IT-based payment services to smaller businesses, they get overlooked by big IT ventures.

This realisation is what drove the creation of Mynt in 2018. Sahlin told TechCrunch, “For us, it was more about being between the banks and accounting systems, providing a solution that solves that problem for SMEs.”

Sahlin and Obermayer paired up with Magnus Wideberg, a systems engineer who has worked for a variety of financial businesses, to start Mynt. The company started first with SMEs based in the Nordics, and right now, it is foraying into the United Kingdom and other European markets. Mynt today provides company cards with Visa as its primary partner, with Sahlin considering American Express “a competitor.”

In today’s episode of the “Start-up of the Week,” International Finance will enlighten its readers about Mynt in detail.

More Than Just A Corporate Card

Mynt has become the all-in-one solution for company expenses, with business credit cards that seamlessly integrate with SMEs’ accounting software. All they need to do is to create an account and get started with a virtual card. Mynt’s platform, built with modern software and seamlessly integrated with both banking and accounting, makes it easy for companies to get their expenses in order, manage their company cards themselves, enjoy real-time control, and access flexible financing.

The start-up also provides spend management tools and automated integrations with major accounting apps. Bringing a touch of embedded finance, Mynt has built an API that lets the start-up’s platform integrate with third parties, powering card-issuing services for enterprise resource planning businesses, banks, and fleet and fuel providers.

However, Mynt is not the only player in the global fintech space to work on such game-changing ideas. Denmark-based Pleo also helps SMEs to handle expense management activities. Another Sweden-based company Fortnox is too known for building expense management and other financial tools for SMEs, and is publicly traded. It also has a valuation in the range of USD 4 billion. However, there is a twist in the story, as Mynt itself powers the company’s corporate card services.

Despite Mynt having “rivals” in its home market (the Nordic region), what may serve as a growth incentive for the start-up and its industry peers is that expense management has remained one of the big pain points in the 21st century economy. Accounts departments of companies spend a lot of time trying to make sure spending is itemised correctly and authorised, but employees are not accountants and will sometimes get these things wrong.

Things get complicated for SMEs as these ventures generally possess smaller accounting departments, and in the worst-case scenario, they might be non-existent as well. So, solutions which automate time-consuming work like expense administration become a lifesaver for entrepreneurs.

There are just over 26 million SMEs in the European Union alone, making up about 99% of all businesses, meaning the 12,000 SMEs that Mynt currently has as its clients make up a very small portion of the market. A report in 2023 published by Pymnts spelt it out: Only around one-quarter of small and medium businesses use corporate cards in the United States, one of the more advanced markets, meaning this is a largely untapped market.

Mynt now calls itself “the financial manager’s best friend,” by helping such professionals to save time and money with easier receipt management and integrations with the market’s leading accounting systems. At the same point in time, the start-up’s solutions are helping business leaders to get full control of their budget and put individual limits on their employees’ cards.

When it comes to employees, the teams within a company are bidding adieu to their out-of-pocket expenses by availing their own company cards. The accountants are getting Streamlined expense management and automated accounting, with real time overview, instead of chasing receipts all the time.

Product Line-up at a Glance

Let’s start with Mynt’s company cards, which are helping businesses to automate their bookkeeping. Business leaders can choose how many cards they need, followed by procedures like setting individual credit limits, uploading receipts and getting full visibility of real time transactions.

While the business cards come with features like tailor-made solutions, transparent contracts, low fees and favourable terms, they have been customised in three categories: Essential (ideal for small to medium businesses with up to 10 users), Premium (optimal solution for companies looking for a comprehensive system with a full overview of all expenses) and Enterprise (corporate card for 100-plus employees affiliated with larger companies and groups).

Since these business cards have been classified as credit cards, the user can pay now or later at a low interest rate. The corporate credit card from Mynt provides it’s a credit limit of up to 5 million SEK (Swedish Krona), one of the highest limits on the Nordic country’s market. The user can manage larger expenses seamlessly and maintain a steady cash flow, while he/she can choose to repay the credit every two weeks via direct debit or once a month by invoice.

The personal company card, on the other hand, frees entrepreneurs from the thought of running their business expenses out of their own pocket, as they can set personalised spending limits for their employees, by organising the professionals into teams, checking their receipts directly in the mobile app and get a clear overview of all expenses in real time.

From card transactions to bookkeeping, businesses can eliminate their month-end paperwork, by managing expenses digitally. Mynt seamlessly integrates with popular accounting systems such as Fortnox, Visma eEkonomi and PE Accounting. With the Auto receipts feature, the right receipt is automatically matched to the right transaction.

On that note, let’s discuss the start-up’s expense management tool, which simplifies things for everyone in the company when it comes to managing and recording all business expenses in one place, saving time in the process. Mynt’s company cards keep all transactions in one place, while receipts get photographed in-app, and anything flagged up can be resolved in record time.

Using Mynt’s low-cost credit, businesses can settle their account on a monthly basis, apart from adjusting spending limits for each employee, ensuring complete control over their finances. Tech companies are now choosing the start-up’s corporate card, as it has become a smart, digital solution that streamlines financial management for such big corporations.

The start-up has recently introduced a new feature called “Out-of-Pocket Expenses,” which comes in handy for entrepreneurs, in case their staff forget to use their Mynt card (or they don’t have one), in terms of processing their expenses (including reimbursements) within the Mynt platform. This particular tool has been tailored with abilities like intelligent receipt scanning with AI and seamless integration with accounting.

Tailor-Made for All Sectors

Apart from tech companies, Mynt also helps the construction sector players, by streamlining cumbersome expense reports with an intelligent digital platform that lets the ventures manage business finances with ease, by setting spending limits for each cardholder and uploading receipts directly from the app, thereby helping these businesses enjoy real-time monitoring of their company expenditure.

Construction companies, through Mynt, are getting a crystal-clear view of their finances with live data that tracks their teams, projects and employees. They are consolidating all company expenses in one place, regardless of which card was used. Mynt’s “Out-of-Pocket Expenses” feature enables AI-powered receipt scanning, expense approvals, and seamless transaction exports directly to the company’s accounting systems. Mynt’s AI model has taken over all the manual tasks related to spend management, ensuring employees get reimbursed on time.

When it comes to retail e-commerce, the sector players get an added advantage from Mynt, with the virtual cards providing the perfect solution for subscription-based promotional services like Google Ads, while ensuring that the businesses don’t exceed their budgets. Plus, Mynt’s low-interest credit facilities give the retail e-commerce players access to extra funds whenever needed.

The post Start-up of the Week: Sweden-based Mynt is here to manage spending of SMEs appeared first on International Finance.

The findings highlight the difficulties the sector is facing following several quarters of expansion as a significant portion of consumers reduce their spending due to inflation and expensive borrowing, while wage growth slows down.

Additionally, Visa reported a decline in its United States payment volumes during the first three weeks of July 2024, attributing the decline to a variety of factors, including the recent CrowdStrike-related outage.

Visa’s stock dropped 3.4% to USD 255.75 in premarket trading, erasing any small gain the company has made so far this year, that is, if current levels hold. At least nine well-known Wall Street brokerages cut their price targets for the stock.

“We don’t expect a positive change in narrative. The current (valuation) multiple will prove a good entry point, but (we) struggle to see a near-term catalyst. We would not be surprised to see shares more range-bound over the next few months until there is greater clarity on the FY25 guide,” Jefferies analyst Raymond James wrote, as reported by the Zawya.

In the meantime, shares of rival Mastercard fell 1.5%, and those of PayPal Holdings and Block fell 0.5% and 0.8%, respectively.

Visa added that the Asia-Pacific region’s payment volumes have decreased as a result of the economic climate, particularly in China. The economy of the nation has been harmed by a protracted real estate crisis and low business sentiment.

In the meantime, pressure on lower-income households was also mentioned in the most recent quarterly results of other major American corporations, including Coca-Cola, PepsiCo, and Domino’s Pizza.

“We’re seeing much more price sensitivity and consumers looking for more value,” PepsiCo CEO Ramon Laguarta said earlier in July 2024.

The post Visa’s Q3 2024 revenue miss prompts caution on Wall Street appeared first on International Finance.

The company, whose valuation, as of June 2024, stands at USD 4.7 billion, offers fintech solutions integrating with accounting software like Xero, thereby allowing companies to set spending limits and control employee expenses. Trusted by over 30,000 ventures, Pleo is simplifying the business spending game by replacing petty cash, shared company cards and manual expense reports with what it claims to be “Europe’s Number One Business Spend Solution.”

What Sets Pleo Apart From Its Competitors?

While Pleo’s fintech solutions work in unison with all sorts of digital accounting systems, including integrations with over 50 apps, the tools put their client companies in control over how and when their employees get reimbursed for their out-of-pocket spending.

Without Pleo’s helping hand, outstanding repayments can cause havoc when it comes to bookkeeping, and not knowing who’s spent what and when creates chaos come end-of-month. With Pleo into play, the same function gets simplified as the client companies can get a clear view of all the money they owe to their staffers, apart from letting employees reimburse themselves or allow the finance team to trigger repayments, putting the leaderships on top of their cash flows.

Talking about the Pleo way of simplifying the business spending game, companies owing their employees money, can send the amount straight to their staffers’ bank accounts, apart from having the option of refunding the employees straight to their personal credit/debit cards. The reimbursement can happen during the salary payment phase as well. Thanks to Pleo, from mileage to meals, it’s easy to be reimbursed for costs associated with the employees’ work trips.

“We’ll calculate the distance and fuel cost of work trips. Simply tell our app where a journey started and ended and we’ll work out what’s owed for fuel. Did you buy something with Pleo that you should have used your own card for? Just mark it as a private purchase and keep track of the money owed between you and your company in the app,” the venture stated further.

Here Are The Products

First up, we have Pleo’s “Business Expense Cards,” which makes spending easy for businesses, whether they are paying for official travel, employee/project expenses or subscriptions. With over 50-plus currencies, Pleo cards help business leaders control their finances while earning cashback.

Pleo’s above solution is more powerful than business corporate cards, by replacing petty cash and shared credit cards with a Pleo employee business expense card. The card comes with individual spend limits, built-in controls, automated receipt capture and more. The card, (can be in either virtual or physical form) also helps businesses control their finances and eliminate nasty surprises with a vendor card that lets the establishments centralise and limit payments to one or a group of vendors.

The businesses, through “Business Expense Cards,” can easily adjust their spending limits or change cardholders without cancelling critical expenses like subscriptions, cloud computing or ads. Also, they get up to 1% cashback. The business leaders can set approval flows and spending limits per employee, purchase or vendor, apart from possessing the ability to create, freeze or cancel cards for team members in just a few clicks. They also get instant visibility of all company spending. Since the card is powered by Mastercard, it can be used by over 30 million merchants worldwide.

Next is Pleo’s “Expense Management System,” which helps businesses cut down the time required for preparing monthly and yearly expense reports and manual errors associated with the process. As the employees buy something using Pleo, they will be instantly asked to capture the receipt in the fintech start-up’s app.

From daily business expenses to software subscriptions, through the “Expense Management System,” companies get instant visibility of all their spending with Pleo’s reports. Apart from handling company card expenses, Pleo is also helping its clients manage their employee reimbursements, mileage, subscriptions and invoices using the same “Expense Management System.”

Another crucial component involving business spending is “Invoice Management.” Like preparing expense reports, this function is also a time-consuming one and prone to having human errors. Pleo has made the whole process an automated one.

With a dedicated invoices inbox and mobile uploads, invoices come straight to Pleo where the start-up’s OCR technology automatically populates data for the client businesses.

Pleo’s expense reimbursement software is helping finance teams to submit, approve and seamlessly process out-of-pocket expenses. The business leaders remain in control over how and when their employees are reimbursed for out-of-pocket spending.

When it comes to claiming expenses, employees have to manually add the spending details, a process that can be prone to human errors. With Pleo, the start-up’s OCR technology scans each receipt so every detail finance teams see is correct, from the date and amount to the merchant.

Solutions For Businesses Across Sizes

When it comes to simplifying the business spending game, Pleo has tailor-made solutions for businesses of all sizes. For start-ups and small businesses, the fintech venture has introduced “Smart Company Cards,” which decentralises company spending by empowering the staffers to buy what they need for work, with up to 1% cashback.

The card has also replaced lengthy reimbursements and purchase approval processes, something loved by employees and accountants alike. Pleo’s expense management processes are built to scale with the start-up’s journey. With receipts and expense data captured on the go, business leaders can rest easy knowing their expense reports are automated and completely accurate.

They will have first-hand knowledge of who is spending what and where, from daily team lunches to online software subscriptions, apart from analysing the spending by category, tags or spender to stay on track of the business budget and find new ways to optimise costs.

For big businesses, through Pleo, their finance teams can manage spending through one account, no matter how many entities/subsidiaries the parent venture has. Employees don’t need to worry about expense reports, as all they need to do is snap a photo of the receipt when spending and upload it to the Pleo app.

From digital receipt capture and automatic expense categorisation to VAT reclaim and reconciliation, Pleo is making the accounts payable process for big corporations an easy affair. Businesses are unlocking real-time insights and analytics on company spending to spot ways to save. Subscriptions, invoices, reimbursements, out-of-pocket expenses and mileage, Pleo is giving these big ventures visibility over all of their spending in one platform.

Pleo In News

Pleo, in May 2024, raised 40 million euro (USD 42 million) in debt financial from HSBC Innovation Banking, HSBC Group’s specialist financial partner arm for the innovation economy. The deal will enable Pleo to offer higher credit limits to more customers and increase flexibility in the financial options available to them.

Pleo’s overdraft facilities are already in use across Sweden, Germany and the United Kingdom, as well as the venture’s native Denmark. With the latest funding, the start-up hopes to drive further growth across Europe, with a market launch in the Netherlands on the cards, where Pleo will roll out its overdraft facilities in the coming days.

“The need for services such as those provided by Pleo has been on the rise amid a protracted cost-of-living crisis, with more SMEs needing overdraft capabilities to stay afloat and complete payments. Over the last six months alone, the average company has seen 6% of their total transactions fail due to insufficient funds. Now that Pleo has partnered with HSBC Innovation Banking, it will be able to alleviate this pain point for clients and boost its credibility in the markets it operates, fuelling additional growth to already impressive growth figures,” commented the FinTech Magazine.

The post Start-up of the Week: Meet Pleo, Europe’s leading business spend solution appeared first on International Finance.

While there is no guarantee that the situation mentioned above won’t come back again, this article will enlighten and prepare its readers on the family financial planning front, its essential elements, and simple measures that can bring everlasting mental comfort to you and your dear ones.

Understanding the concept

While households create a family budget, many fail to implement the plan, says Taylor Kovar, the CEO of Texas-based Kovar Wealth Management.

“This is where we want to go and this is how much we have right now,” Kovar said.

Following a financial plan gives families direction, freedom to pursue their interests, and access to opportunities that they might not have otherwise had, like beginning a family company or buying a property.

“We don’t say that the person with the most money or the one with the best financial sense gets to make those decisions. Working as a team, so everybody feels satisfied” is crucial. It is a little more complex than just money,” Kovar explained further.

Establishing both long-term and short-term financial objectives for the family might aid in defining the “why” behind your strategy. It could involve long-term goals like retirement, investing in a college degree, or buying a house. Alternatively, it could be short-term objectives like saving money for an emergency fund, clearing debt, or planning a family vacation.

Knowing the game

Taking general guidelines into consideration when creating your list of objectives can be helpful. The 50-30-20 rule is frequently recommended by Brandon Robinson, president and founder of Texas-based JBR Associates Financial Services, who cites the rule’s efficacy and simplicity.

According to this rule, you should set aside 50% of your salary for necessities and 30% for luxuries. The remaining 20% goes toward savings and investments, which promote long-term growth and financial stability.

You can experiment with alternative methods or a different percentage breakdown. Don’t be scared to attempt multiple approaches until you find the one that best suits your family.

A budget is an essential tool for your family’s financial plan since it makes it clear how your money is being spent, which helps you manage it better. It is said eloquently by financial advisor Kovar, “You can’t manage what you can’t measure.”

The need to watch spending has grown, as evidenced by a New York Life Wealth Watch poll that found an astounding 73% of parents struggle to keep up with expenses. The first step in creating a budget is adding up all of your income, including child support and other sources of income such as paychecks.

After that, every price is totalled, with variable costs like groceries and entertainment coming after fixed commitments like rent or a mortgage, auto payments, utilities, and tuition. Any money left over after deducting expenses from income should go into investments and savings to promote stability and growth in one’s finances.

Frequent monitoring of spending enables continuous evaluation and necessary adjustments, guaranteeing that financial goals are met.

Families can save money for many purposes at the same time, but if you don’t already have one, your main focus should be setting aside money for an emergency fund. You may prevent debt or even financial disaster by setting aside money for unforeseen costs like house repairs or medical emergencies.

If you’re just starting, open a different savings account and schedule a monthly or weekly automatic deposit. Selecting a high-yield savings account allows you to accrue interest in addition to your contributions. The ultimate objective is to accumulate enough funds to cover three to six months’ worth of costs in the event of a job loss, personal crisis, or other unforeseen disaster. You can start by transferring as little as $50 to $100 per month.

Having debt can hinder your ability to reach your financial objectives. Robinson claims that although some debt, such as a mortgage, may be required, many families wind up in debt as a result of overspending on wants and accruing large credit card debt. In other instances, having to use credit to cover unforeseen costs results from not having enough emergency cash.

For whatever reason, you should prioritise making those payments consistently for a while if you do have high-interest amounts. It could mean temporarily cutting back on some expenses or earning additional money. If you’re unsure of where to begin, you can look into other possibilities or consult with a credit counsellor for assistance.

The last thing you want is for unanticipated events to ruin the hard work you’ve put into adhering to a family financial plan. Products for insurance can help with it.

Term life insurance, health insurance, and vehicle insurance are the main kinds to have. In the latter case, your loved ones may benefit monetarily in the event of your untimely death if you have a term life policy worth multiple times your yearly income and you have dependents.

There are additional insurances, such as business, umbrella, and pet insurance, that could also be helpful to you.

Investing in the future

Family financial planning includes long-term planning in addition to day-to-day or month-to-month spending and saving. You can prevent yourself from ever having to support your children financially by setting up money for retirement.

You’ll have more growth potential the earlier you start investing. Additionally, you can achieve consistent growth while minimising your risk by keeping a diversified portfolio that includes a variety of investments.

Stocks, bonds, mutual funds, and retirement plans such as 401(k)s and individual retirement accounts (IRAs) are examples of long-term investing alternatives.

An investment in college can increase your children’s earning potential in the long run. The most recent data available, from 2021, showed that the median wages of individuals with a bachelor’s degree were 55% greater than those of individuals with only a high school diploma.

You can save and grow money tax-free using special accounts like 529 plans to assist lessen your children’s future student loan debt burden. Adding more money to a college savings plan can be a wise investment if you have a healthy emergency fund and are saving for your retirement.

According to Tyler Meyer, CFP, founder of RetireToAbundance.com, financial education ought to be a family affair. He suggests that everyone, whatever of age, contribute their financial expertise at a “Family Finance Night.”

“This not only fosters financial literacy but also establishes a welcoming atmosphere for candid financial discussions, strengthening sound financial practices,” Meyer stated further.

While shopping with your children, you may also look for instructional moments related to money and educate them to divide gift and allowance money into spend, save, and donate buckets.

A family financial plan ought to adapt as your priorities and funds do. It shouldn’t remain stagnant.

“Plan a monthly check-in with your partner and/or children, and then you can go deeper once or twice a year,” Kovar advises.

Additionally, you may decide to review your financial planning checklist, consider new options, and be guided by a financial counsellor or planner once a year.

Life post-retirement

A common goal for many families is to retire. A crucial component of family financial planning is evaluating clients’ retirement objectives and assisting them in creating a strategy to reach those objectives. If applicable, a successful retirement plan for a couple entails a thorough and well-coordinated strategy to guarantee that each person has the resources and financial techniques that work best for them.

As their financial advisor, you ought to urge your clients to fund their employer-sponsored retirement accounts (401(k)s and 403(b)s and to fully utilise any employer match that may be offered. When compared to other retirement savings vehicles, these plans may have higher contribution limits and offer tax advantages.

You should advise both spouses to open IRAs, either standard or Roth, based on their income, tax status, and eligibility, in addition to employer-sponsored plans.

Couples can diversify their retirement funds and enhance their long-term financial plan by utilising the extra tax advantages and investment flexibility that IRAs offer. You must motivate your clients to make regular contributions to their retirement accounts, especially in times of market volatility or uncertainty. Furthermore, it will emphasise the significance of routinely assessing and adjusting their investment portfolios to preserve the intended asset allocation and risk profile.

As your customers mature, talk to them about the best time to file for both spouses’ Social Security benefits, keeping in mind their ages, life expectancies, and possible survivor or spousal benefits.

Assist them in creating a retirement income plan that accounts for required minimum distributions (RMDs), tax consequences, and probable changes in their spending habits as they approach retirement.

Tax and legacy planning

Legacy planning is developing a plan for safeguarding a family’s wealth and transferring it to subsequent generations in addition to life insurance. This can involve tax planning techniques to reduce estate taxes, if applicable, as well as estate planning techniques including drafting a will or establishing a trust.

Give customers advice on the significance of establishing a power of attorney, will, and healthcare proxy. Talk about ways to minimise taxes and preserve money using gifting techniques, trusts, and charitable contributions.

To assist clients in creating a thorough legacy plan that is in line with their beliefs and long-term financial objectives, financial advisors want to collaborate with estate planning attorneys.

Due to many income streams, dependents, and possible credits or deductions, families can have more complicated tax circumstances than do individuals. Financial advisers should advise clients on ways to reduce their tax burden and assist them in understanding the tax ramifications of their financial decisions, working in tandem with certified tax professionals.

Achieving financial milestones and setting priorities is facilitated by creating financial goals that involve your entire family. Once you construct the family budget, tools, and technology can help you put a lot of your plan on autopilot, even if it can feel overwhelming at first.

Your family’s financial stability can be strengthened for both the present and the future after you manage debt, build an emergency fund and insurance policies, and begin to see growth in your savings and investment accounts.

The post Financial planning for families: The success formula appeared first on International Finance.

Neglecting Emergency Fund Allocation

One of the most common mistakes is overlooking the importance of an emergency fund. People often prioritise regular expenses and savings goals but forget to set aside funds for unexpected situations. Without an emergency fund, unexpected expenses like medical bills or car repairs can disrupt the entire budget. To overcome this, allocate a portion of your income specifically to the emergency fund. Aim for at least three to six months’ worth of living expenses to provide a financial safety net.

Underestimating Variable Expenses

Individuals often underestimate or overlook variable expenses, such as entertainment, dining out, or impulse purchases. These costs can add up quickly and lead to overspending. To address this, track your variable expenses meticulously. Use budgeting apps or spreadsheets to monitor where your money is going. Establish realistic limits for discretionary spending and stick to them to maintain financial discipline.

Ignoring Debt Repayment

Many people neglect to prioritise debt repayment in their budgets. Whether it’s credit card debt, student loans, or other obligations, allowing debt to accumulate can result in long-term financial strain. Incorporate a dedicated debt repayment plan into your budget. Allocate a portion of your income to systematically pay off outstanding debts. Consider focusing on high-interest debts first to minimise interest payments over time.

Failure To Adjust Budget Periodically

Life is dynamic, and financial circumstances change. Failing to adjust your budget to reflect these changes can lead to inefficiencies and missed opportunities. Regularly review and update your budget to accommodate life changes, such as salary increases, new expenses, or changes in financial goals. This ensures that your budget remains aligned with your current financial situation and objectives.

Overlooking Small Regular Expenses

Small, recurring expenses, such as subscription services or daily coffee runs, often go unnoticed but can accumulate significantly over time. Ignoring these costs can undermine your budgeting efforts. Identify and evaluate all recurring expenses, no matter how small. Cut down on unnecessary subscriptions or find more cost-effective alternatives. Redirect the saved funds toward savings or debt repayment to enhance your financial health.

Setting Unrealistic Goals

Unrealistic financial goals can set you up for disappointment and frustration. Whether it’s saving too much too quickly or aiming for an impractical reduction in spending, setting unattainable goals can lead to budgeting burnout. Establish realistic and achievable financial goals. Break larger objectives into smaller, manageable milestones. Celebrate small victories along the way, creating a positive reinforcement loop that keeps you motivated to stick to your budget.

The post Six common budgeting mistakes to avoid appeared first on International Finance.

Depending on their nature, these guidelines may be formal or informal. Institutionalism’s primary goal is to reduce transaction risk and predictability. International organizations like the United Nations and the International Monetary Fund serve as examples. These firms adhere to the guidelines and principles that have helped them function effectively and gain worldwide dominance.

Institutionalism views a broad range of laws, customs, and regulations as enduring principles that change through time. Simply put, people do not adhere to a single institution or guideline. Instead, the laws alter for the good of the whole, depending on the circumstance.

Institutionalism, in this case, determines which values will be relevant at what moment. Additionally, because the real world is dynamic, it is imperative to analyze all institutional environments. Additionally, they must decide on the institutional framework they want to use.

However, some elements may need help as the process continues. For instance, creating a structure without communicating it well can lead to failure. Similarly, money itself is a crucial component in exchanges. The transactions will only be transparent if the state has a uniform currency. Therefore, having comparable cash can improve productivity and uniformity at work.

The language, the financial system, and even some economic powers are additional influences. Some of these powers might be against establishing institutions to safeguard their interests.

Growing bribery, corruption, and mistrust have also hampered the nation’s economic development. When it is expensive to transact and utilize institutional economics, institutionalist Douglass C. North argued later in 1994. It is essential because more institutions will result in more significant economic growth for the nation.

Contemporary institutional economics

Most economists concur that the primary factors influencing economic prosperity across nations are institutional variations. Additionally, there is sufficient empirical data to demonstrate that some countries alter their institutions and go through political changes to embark on long-term economic development pathways.

Institutions, Institutional Change, and Economic Performance by Douglas North (1990) describe institutions as the “rules of the game in a community.”

Adam Smith emphasized the significance of a justice system, private property rights, and the Rule of Law as early as the seventeenth century in his “Wealth of Nations.”

When evaluating the relative relevance of institutions, Rodrik et al. (2002) note that institutional determinants “trump all others.”

Aron (2000) found a positive correlation between seven development indices and institutions related to property rights and law enforcement, ten development indices and civil liberties, ten more development indices and political rights, four development indices and cooperation, and fifteen development indices that correlated economic development with democracy.

Studies by the UNFAO in 2006 and by Myrdal (1992) on a comparative analysis of development trajectories discovered that the unequal land ownership in Latin America, aggravated by population increase, was the main reason for its underdevelopment.

Improved agricultural technology only let landowner elites cement their power over the industry, resulting in institutions that continue route dependency. On the other side, while increased equality and effective economic institutions helped Vietnam’s economy flourish, Nicaragua’s development was hampered by the government’s instability and concentration of power, which prevented it from spending on public welfare and infrastructure. Birell et al. (2005) discovered that. In contrast, Botswana, Mauritius, and other countries benefited from institutional capacity to harness domestic primary resources; Sierra Leone, Angola, Equatorial Guinea, and Nigeria did not share this experience. In repeating the findings of economists Abhijit Banerjee and Lakshmi Iyer (2005), along with another study conducted by Banerjee and his economist wife Esther Duflo (2011) noted that in India, the two unique ways of collecting land tax during British rule generated conflicting effects.

Agriculture produced more in areas where farmers were responsible for tax payments than in areas where landlords used to collect taxes. In the first scenario, more public welfare initiatives like schools and hospitals were established, along with greater social collaboration. Similarly, Bardhan (2006) discovered that institutions focused on development ensured a greater flow of information and more resource savings so that the state could appropriately offset economic risks.

According to Ferrini, institutions impact the degree of appropriability on investment returns, the protection of property rights and expropriation of rights by elites, and the conduciveness of the ecosystem to cooperation and increased social capital. To reduce risks and assure sustainable levels of prosperity, inclusive and participatory institutions boost information flow and resource pooling.

Based on cross-country studies of Asian, Latin American, and African countries, the World Bank’s Commission on Growth and Development’s working paper no. 10, titled “Role of Institutions in Growth and Development,” concludes that differences in economic institutions, which reflect the results of various collective choices, are the primary drivers of cross-country differences in per capita income.

According to the bank, resolving the development issue requires urging the relevant institutions to work toward a favourable political and economic equilibrium. The Bank claims that the African experience shows that, in most cases, although not always, improved economic policies and institutions will result from promoting democracy and accountability.

On the other hand, Latin American history would contradict the Washington consensus that introducing democracy would unavoidably disrupt the political equilibrium. Contrarily, China’s experience would demonstrate how the nation began a growth trajectory after 1978 due to a shift in the political balance that increased the influence of those seeking to enact changes.

According to a 2005 MIT study titled “Institutions as a Fundamental Cause of Long-Run Growth,” the prosperity of England and the Netherlands can be attributed to sound economic institutions like safe property rights and well-developed financial markets, as well as to institutions like the “organization of overseas trade” that contributed to the expansion of Atlantic trade during the 16th century.

The paper refers to the development of democracy in 19th-century Europe, which influenced economic institutions and policies, including allocating financial resources. In short, institutions play a significant role in the economic growth of nations by setting the context of monetary transactions, to use Ferinni’s phrase.

India fits the bill against the background above. The Directive Principles provide a solid framework for economic policy, and it is one of the biggest democracies in the world with the Constitution that is the longest written and guarantees the Fundamental Rights to life and liberty.

A sound legal framework protects property rights, and the separation of powers clause establishes the judiciary, the executive branch, and the legislature as the three main pillars of government. A healthy domestic market and well-regulated financial markets help to increase manufacturing. India is proud of its significant public sector investment, which accounts for 2.2% of GDP and is projected to increase to 2.9% in 2023.

Regular elections guarantee that people in authority are answerable to the electorate. Keeping an eye on the integrity of public spending is under the purview of the Comptroller and Accountant General’s office. Information is spread more quickly because of active media and the Right to Information Act, passed into law in 2005. India has a thriving social capitalism, as well.

However, India’s heavy reliance on the reform process is the critical policy decision that sets off its growth trajectory. After 1991, India implemented industrial delicensing, which exempted the private manufacturing sector from licensing requirements. It devalued the Indian rupee in 1996 to give its software and other exports sector a more decisive competitive edge and keep up with the increased competition from foreign markets.

Additional steps to increase India’s competitiveness in the global market include lowering the average nominal tariff rates, eliminating the consumer goods quota in 1991, liberalizing tariffs in the intermediate goods sector, and establishing preferential trade agreements with Singapore, Sri Lanka, and Thailand.

When FERA was dissolved in 1991, it increased the appeal of foreign investment. Additionally, the foreign investment made through the portfolio route allowed domestic sector industries to benefit from the increased foreign equity investment limit. The driving force behind this expansion was India’s entrepreneurial spirit, which stepped up to the challenge of capitalizing on the unrestricted, investment-oriented economic climate.

However, despite increasing interstate differences, the 1990 reform phase failed to revitalize the power sector or become more inclusive. The agriculture industry decreased due to the labour-unfriendly nature of trade union laws. Therefore, for India to dramatically change the course of its economic policies, financial crises, and technocratic conviction were required.

The post Impact of institutional economy appeared first on International Finance.

The start-up is currently operating across 27 countries. It became Bulgaria’s first unicorn in March 2023 as it raised a USD 100 million extension to its USD 115 million Series B from November 2022.

Reinventing Business Spending
Among Payhawk’s solutions, let’s talk about Corporate Visa Credit and Debit Cards, which, backed by powerful software to control the client company’s spending, come with benefits like having credit limits of up to 250,000 pounds based on assessment, getting multi-currency credit lines in the Great Britain and the European Union regions, interest-free card purchases. Also, no personal credit checks or guarantees are required availing the cards and the product is compatible with Apple and Google Pay too.

Availing the above service will help the client companies to stay in touch with each and every business payment, apart from managing spending limits and viewing outstanding expenses.

“Customise your employee spending with built-in limits, policies and rules and easily apply them to individual or team cards. Change or update corporate card controls in real-time, freeze cards, or issue new ones in seconds. Remove the burden of individual card control with clever account automation that allows you to manage both debit and credit corporate Visa cards in bulk. Set rules and apply them to whole departments with a click,” the venture commented further.

Also, the cards help their owners control monthly recurring spend limits and ATM withdrawals, apart from setting approval flows and managing fund requests from a desktop/smartphone.

Apart from these, Payhawk cards also help the fintech company’s client businesses to manage and scale up/down their global operational spending, apart from getting free insurance within the European Economic Area.

In short, Payhawk replaces the mundane job of reviewing paper receipts with an all-in-one software for corporate expense management. The software has powerful multi-entity management features to improve cash flow control and support the client business’ month-end accounting operations. Payhawk’s Group Dashboard accumulates all the business spending in one place. The client business can improve its cash flow by visualising current funds as against the upcoming spend via the ‘Group Dashboard’, which also comes with low balance warnings.

Also functions like defining expense fields and types, standardising expense submissions, simplifying workflow management, building group-level workflows and managing them at entity levels, closing month-end accounting faster and efficiently, tracking and chasing expenses, pulling off multi-entity accounting (intercompany transactions), and keeping track of business loan payment statuses, can be performed through Payhawk’s ‘Multi-Entity Management’, which acts as a centralised option.

Payhawk’s ‘Expense Management Software’ tracks and helps a company’s finance team to optimise company budgets and expenses. From monitoring every business expense and transaction, generating insights related to budget planning and forecasting, and connecting corporate visa cards to specific employees and teams to track spending of the latter, the ‘Expense Management Software’ takes care of all these functions.

Payhawk’s expense management software ecosystem also lets its clients sync their business tools and increase productivity on the finance front. Payhawk is currently building a network of professional services partners, to draw up personalised solutions for its client businesses, when it comes to simplifying the accounting job. Also Payhawk’s ‘Smarter Accounts Payable and Invoice Management Software’ lets its users control, manage and process company payment and reimbursement invoices at scale, all in one place.

The solution automatically extracts, reconciles and archives data from invoices in more than 60 languages and digitises the bookkeeping, with the help of machine learning. So the whole process goes paperless here, thereby ensuring that the audit report is ready with accurate accounting information. Managing company cards, generating expense reports, reimbursements, and invoices all get done in one single spend management platform.

A Game-Changing Partner Service
Payhawk has its own ‘Solution Partner Services’, where the client businesses can access a network of trusted professional services partners with specialities in integration and customisation services for Enterprise Resource Planning, Human Capital Management systems, accounting systems and other business tools.

These Partners provide top-of-the-market professional services, in order to prepare the prospective Payhawk customers with the necessary resources, before the fintech platform boards the client venture. Also, Payhawk’s solutions engineers coordinate with these Solution Partners during the whole process.

“Payhawk is present in more than 32 countries across two continents. Our customer-centric organisation and the product-oriented team have helped us disrupt the expense management market, by combining company cards, expenses and invoice payments,” the venture stated further.

Also, Payhawk organises events like webinars and podcasts to enlighten people about the A-Z of fintech.

The Road Ahead
Payhawk, in August 2023, announced ‘aligning’ itself with open banking API Yapily to enhance its Payhawk wallets.

The integration will allow users of the London-based fintech platform to easily top up their debit accounts and repay credit accounts from a linked bank account. Yapily’s extensive bank coverage and single API integration means that Payhawk customers will have the ability to track deposits into the platform, enhancing the service’s transparency.

Photo Credits: Payhawk

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