50 Personal Finance Habits Everyone Should Follow

Start by spending less than you earn every month.

From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating. Look for these classics on the weekends.

I have a lot of bad habits. For example, I tend to bite my nails when I get stressed out. I also have a penchant for opening the cupboard to get a drinking glass - then walking away and leaving the door wide open. I know. I can’t explain it either.

Even so, I have a lot of good habits too; perhaps not coincidentally, many of them are related to personal finance.
Hopefully, you have a lot of good personal finance habits too. How many of these apply to you?

1. Taking advantage of the voluntary pension contribution (Retirement Savings Account). These contributions not only reduce your tax liability, but they also act as a de facto quasi-savings plan.

2. Tracking your income and expenses.

3. Being careful not to overspend on gifts.

4. Paying attention to mortgage interest rates even after you buy a home. People who fail to do this may miss out on refinance opportunities that could save them tens of thousands of dollars over the life of their loan.

5. Never buying anything on impulse. One of the best ways to help prevent this is to make a shopping list and then stick to it.

6. Opening your bills when you get them.

7. Paying your bills online when possible.

8. Doing your research before purchasing extended warranties.

9. Ignoring credit card convenience checks that come in the mail. They usually come with high fees that make them extremely expensive.

10. Saving part of your income for retirement. Try saving at least 10 percent from every paycheck; it’s never too late to start.

11. Keeping the money in your wallet to a minimum.

12. Spending less than you earn every month. File this one under “D” for “Duh!”

13. Having an exit strategy when investing. Without one, it is tough to recognize the right time to cut your losses or take profits off the table.

14. Never assuming past performance guarantees future results.

15. Taking advantage of automatic paycheck deductions. Not only does it ensure you pay yourself first, it’s an easy and painless way to save for retirement.

16. Reading all contracts before signing on the dotted line.

17. Planning your dinner menus in advance. We do this at my house because it’s an extremely effective way to reduce our monthly food expenses.

18. Reviewing your credit card statements for errors and erroneous charges.

19. Keeping a budget. Because for most folks, when it comes to managing their money, failing to plan is the same as planning to fail.

20. Faithfully following your budget. It’s one thing to create a budget, but if you don’t have the discipline to put it into action, why bother?

21. Increasing your savings and contributions every time you get a raise.

22. Properly maintaining your car. By following your car’s maintenance schedule and paying a little up front, you’ll reduce the risk of encountering more costly major issues down the road.

23. Paying the bills on time. By doing so you’ll avoid spending money on needless late fees.

24. Taking advantage of coupons and internet promotional codes as often as possible.

25. Refusing to pay the minimum on your credit card bills each month. Here’s a credit card fact: making minimum payments each month will ensure you pay the maximum interest.

26. Using your credit card to buy things only if you can pay it off in full at the end of each month.

27. Leveraging “good debt” to purchase things that have the possibility of increasing in value, or providing a path to a higher income in the future.

28. Never hoping for an inheritance to solve your money problems.

29. Avoiding the use of payday loans to cover temporary financial shortfalls. Eliminate monthly shortfalls by following a budget and maintaining an emergency fund.

30. Not relying on pension scheme as your primary source of retirement income.

31. Avoiding the lottery. There is a reason why the lottery is known as the Stupid Tax.

32. Setting, and then regularly reviewing and updating your savings goals.

33. Never overpaying for insurance. For example, why pay the higher auto insurance premiums for low deductibles if you rarely make claims?

34. Resisting the urge to float checks right before payday. Today, faster bank processing makes this practice much more risky than it used to be.

35. Fully understanding stocks and other financial instruments before investing in them.

36. Avoiding cigarettes. This expensive habit is one of the Four Horsemen of personal finance.

37. Avoiding wasted time clipping coupons you’ll never use.

38. Ignoring the temptation to keep up with the Joneses.

39. Buying a new car — or better yet, a newer used car — and keeping it for at least ten years. Buying new cars is costly because they can lose upwards of half their value by the time they are three years old.

40. Remembering to comparison shop whenever possible.

41. Regularly checking your credit report for errors, signs of fraud and identity theft. You’re entitled to a free credit report from Experian, TransUnion, and Equifax every 12 months — that means with proper planning you can actually get an update every four months!

42. Optimizing your 401(k) account every year. Diversifying and balancing your allocations will minimize your losses in the event of a major market downturn.

43. Negotiating whenever the opportunity presents itself.

44. Ensuring your retirement needs are taken care of prior to providing for your children’s future. What good is saving for the kids’ college education if you’ll be eating cat food in your golden years?

45. Avoiding frugality as a means to achieve prosperity. You can only free up so much money by cutting expenses.

46. Occasionally rewarding yourself by splurging.

47. Maintaining an emergency fund. Everyone should have between three and six months of living expenses in the bank.

48. Resisting the urge to tap your emergency fund for non-emergencies.

49. Avoiding interest payments whenever possible.

50. Treating your household like a business. By taking an active role in managing your finances and looking at ways to maximize your income you’ll ensure a brighter financial future for you and your family. Who knows; maybe you’ll even stop biting your nails.

Doing Business in Africa

CNBC Africa’s Esther Awoniyi caught with Cemile Hacibeyoglu, a private sector specialist at the World Bank Group to track the progress of the ease of doing business in Africa.

This year marks 15 years since the ease of doing reports by the world bank was put together and I know that it’s dramatically formed the way Africans do business here on the continent but help us understand how dramatic these changes have been.

HACIBEYOGLU: Let me just start with introducing what they doing business index does and measures. You just mentioned that it has been the 15th anniversary last year’s edition that came out in October but this is an annual publication of the World Bank group that measures ease of doing business and benchmarks economies according to how easy or difficult it is to do business in these economies. Currently it measures 190 economies across the globe but when it started 15 years ago it was just looking at a little over 130 economies and it wasn’t even capturing the whole spectrum of different areas of business operations that apply to small and medium enterprises.
Today the report looks at areas that relate to the small and medium enterprises the daily lives of these enterprises if you wish, from starting a business to paying taxes to trading across borders to all the way to if you have to go to court or even be bankrupt so if you wish, it’s a very good barometer of how the business environment is in a given economy and of course if you do put out such a public tool in a public space countries are very interested to see how they do compared to their peers, compared to the neighbours and we have seen this report directly really encourage and incentivise countries to do better in the business environment. So globally it has been really has played that role in encouraging countries to improve the business environment but very much so in africa as well.

I know that for Africa specially Sub-Saharan Africa, the region continues to lag other regions when it comes to implementing as some of these reforms to tell us about that.

HACIBEYOGLU: You’ve hit the nail on the head with that, Africa still does on average Sub-Saharan Africa still does have the lowest average as a region the average is about 243 out of 190 economies as you can see there’s definitely room for improvement but it’s not about where we are today as the region, it’s about the journey when it comes to it, especially when you analyse trends if you looked at what was happening about 10 years ago you could only see 3 out of 10 economies improving, today it’s 8 out of 10 economy is improving so 36 out of 48 economies each year or for the past three years introduce at least one more reform that make it easier for businesses to operate within their economies and what does it say it means that African economies have put economic diversification private sector led growth at the heart of the competitiveness agendas.

So would you say that that has been the major problem why the region has lagged? The major challenges why it’s been that way?

HACIBEYOGLU: I think from where the region is coming; from a lower place compared to others in that sense the journey will be longer but I think the progress we have made it certainly is one of the best. In terms of number of reforms, we do top every other region the only other more active region is eastern Europe and central Asia and if you look a little bit into trends on the reasons for that they very much incentivised by policies promoted by or driven by joining the EU and all the others for funding and incentives associated with that but Africa on its own has a really come a long way in increasing this reform pace and really ceasing this moment and understanding the importance of private sector lead growth for competitiveness of the continent.

Do you think that that conversation putting the private sector at the centre of business in especially driving economic reforms, do you think this is a message that is resonating across the continent?

HACIBEYOGLU: Very much so and we’re seeing this throughout the numbers as I said. Actually this past year, the 15th edition of the report, we saw a record high number of reforms across the country it was 83 reforms, we haven’t seen this number. The year before we thought it was a record with 80, this year 83 and I just think the only way is up as I said the number it’s just the number of reforms so the pace but it’s also the number of economies so we are reaching know even post-conflict economies, smaller economies or big economies, we’re in Nigerian now, big economies that didn’t used to think about this kind of reforms are also working in this direction so definitely the trend is very positive.

What is it that distinguishes those countries that have been successful that have that momentum from those who don’t?

HACIBEYOGLU: So these countries realise the importance of economic growth and they realise the importance of having a business environment that is conducive for businesses to thrive so they realise that is not just about investment or results-driven growth but it’s also about your average citizen and their interactions with the government because in most developing economies in the world, about 90% of jobs they come from small and medium enterprises. So you can’t really be talking about growth in developing economies if you don’t address the business environment for small and medium enterprises.

Is it easier to implement many of these reforms in an economy that has low poverty and unemployment levels?

HACIBEYOGLU: It gets more complex with the levels of capacity of the government with the levels of vision of the government it does get more difficult so africa’s context in that sense maybe bringing back to your original point of why are we so behind I think the starting point is a bit low in that sense but I want to say that we are outpacing the other regions in the way we are doing in the determination in which we are working.

So there is opportunity for leapfrogging

HACIBEYOGLU: Absolutely.

Is our PVC enough for the change we desire?

Nigerian problem is as old as Nigeria herself and the problem is no longer in Nigerian’s fabric but in our DNA. So anomalies have become the new normal, and sometimes when you act normal, people will advise you to see a doctor. Imagine, office environment where everybody believes in crooked means, you can’t stand alone or you won’t just lose the job alone, you may lose your life.

While it is commendable that you have got your PVC, I hate to bust your bubble, but the truth is that card is not enough to enforce the change we all desire. Frankly, we are all part of the system that brought Nigeria on her knees. We are all corrupt, every average Nigerian engages in the following acts on daily basis:

. Break traffic rules simply because they believe they can get away with it

. Want to get a document whose approval process takes six months to process its approval, in six days

. Litter the street with an unwanted item at will

. Support anomalies simply because their friends or family is in power

. Do anything to break protocol or member jump due process just because they have access to someone in power.

And the list goes on.

I bet you engaged in at least one of the following in this just concluded week or at the moment in the middle of one. And the most terrifying is that some of us are not only corrupt; they are the ones spreading the virus- when you pressurize an official to do what he is not supposed to do or plead for waiver when you break the law, you have spread the virus.

Also, I have discovered that it the grassroots corruptions that encourages corruption at the top. If your village people knew you have been given an appointment in government house, you will begin to receive visitors asking you for all manner of help and when you don’t compromise, you will be given terrible names. So, while the PVC is a good step forward, we need to start discouraging systems that give corruption life right from grassroots level. Nigeria will be a great place, if we change our modus operandi at the grassroots level!

The change will begin when our nurses and doctors in various public hospitals change their negative and uncaring attitude to patients’, when they handle all cases professionally and with empathy. Many of the medical personnel don’t care whether a patient needs emergency attention or not and nobody to call them to order because that is the new normal! We like to blame the police, but when you put a vehicle with incomplete vehicles particulars on the road and you don’t want to be arrested you have given life to corruption and it will feed fat on your crooked acts. One of the sensitive places in Nigeria where nothing works because people ensure nothing works is in government secretariat. A project has been approved but they will find avenue to divert the funds approved. And from experiences with civil servants, that is where real change must begin with, treat every case file without expecting to get paid because that is what you are employed to do. Many businesses have been frustrated out of the country simply because of ambiguous policy formulated by civil servants because of personal vendetta and greed.

A sage defined foolishness as an act of doing the same thing over and over again with a view of getting a different result. If we get new sets of people into governance of our beloved nation but fail to change our ways, I am afraid, we will continue to have the same story to tell. Change won’t come because we have PVCs, unless, we subscribe to change and enforce the change from our household and let all of us do the same. The right attitude is taking responsibility and making ourselves accountable to others.

And when we have cleansed our households of all ill-acts, we can get on our immediate streets and get the street clean-up, then, we can now be righteous enough to call out those incompetent demi-gods at the top and send them all back to their respective villages to clean their household and leave governance of our great country in the hand of competent and compassionate people!

Culled from The Guardian.

Oh my SWOT?!

SWOT Analysis is known to everyone. And how its usefulness can not be overemphasised. But in this data driven and fast-growing generation, there are new methods that are evolving everyday. Meanwhile, SWOT has not and never been exhausted. We need to understand the next step(s) after ascertaining our Strengths, Weaknesses, Opportunities and Threats. ...What to do? Strength - Improve Weakness - Learn Opportunity - Encash Threat - Analyse S - When we know we are good at something, we must improve our skills to become better and be first with own unique qualities. We build our market niche on our strengths. W - We know very well we are lacking somewhere, we are so-called weak in something. No worries, we can learn to get over our weakness. If we find it difficult, ask for help, ensure to learn and face your fear. O - We get many opportunities in our personal and professional life but understanding the right one within the time frame is important to estimate our growth. Our decision-making ability, experiences and learning plays a vital role in this. T - Understand we are not only one in the race, there are millenniums with you. You know what you and others are doing. Stand differently from the crowd with your own thinking. Do not replicate others. It’s about You! With SWOT analysis, you get to know who you are and what you can do. You will make wonders in your life if you do the needful: Talk to professionals at PRO LOGIC IDEAS CONSULTING. Call | WhatsApp | Text | Email | Ping us now: +2348027299259 | +2347039394944 | contactus@prologicideas.com | D8B42E6C.

Cultivating Good Savings, Spending Habits

Cultivating the habit of savings is a very important one; this habit can help you in many aspects of life.

A good saver can save out funds for business; a good saver is debt free; a good saver has already made a right and bold step to financial freedom and a good saver can reach certain goals that can’t be ordinarily attained with the limited revenues he gets.

According to www.financialgazette.co.zw, cultivating a savings culture is always ideal, but it’s never easy. Savings entails starving yourself off certain wants and pleasures, and that takes a lot of discipline. Many people want to save, many people wish they could save, but just a few save at the end of the day.

Cultivating good savings culture will definitely affect your spending habit as well.

There are certain ways you can cultivate a savings culture.

1. Assess your financial health

The first major step to savings is assessing your financial health; this would help you know the direction you’re headed and how to get there. You need to have a clear picture of your income and expenses; you need to know what takes the bulk of your money, and also try to ascertain whether you’re spending more than you earn. When you have this figured out then you can move to the next step.

2. Have a budget

Having a budget would help guide you on what you ought to spend your money on and what you shouldn’t. With a budget, you would know your needs and wants and have a clear picture of how to cut down on spending on your wants. Wanting to satisfy your wants would make you unable to save. A budget would help you plan better, save better and cut down unnecessary expenses.

3. Keep track of your spending

Your spending habits would determine if you would be a successful saver or not. Keep track of your daily lifestyle and what you spend your money on. After assessing where your money goes, look for ways you can minimise how much you spend.

4. Have a target

The best way to save is having a target; saving without a target might not keep you motivated, but saving for a target keeps you motivated and focused. Have a realistic goal and save towards it.

5. Be debt free

Try as much as possible to live a life free of debts. Manage your finances judiciously and avoid having to collect loans. Live according to your budget; this would help you in the long run.

6. Save for emergencies

Emergencies happen all the time; this is something we have no control over. The best way to handle emergency is to save, so you won’t be left out of the dark. Set about five per cent of your income monthly to save for emergencies, so you wouldn’t be left in the dark when the situation arises. Your emergency savings should be different from your normal savings.

7. Pretend you are paying off a loan

The best way to frame your mind-set towards savings is to pretend you’re paying off a debt. Continue making the monthly payments into your savings account. Even after you reach your set goal, never stop this habit.

8. Set your mind towards saving

Having your mind geared towards saving would help you save better. Also, if you notice you still have money left at the end of the month, rather than spend it unwisely, the best bet is to save it. This would help you reach your goal faster.

9. Set a fixed percentage

The best way to save is by setting a fixed percentage to be saved monthly. This way, when your income increases, your savings would increase as well.

10. Try to avoid gathering and friends that would give your saving a setback

Friends are important, but when you have friends that won’t let you save, it’s best to minimise the way you see them. Gatherings and friends that prompt you to spend money won’t only kill your savings but might even push you to spend above your earnings. www.elcrema.com

Four Ways to Maintain Proper Savings Culture

Most good savers have a good understanding of their expenses, know how to control them, are good at saving money, and know how to resist upgrading. Successful people usually follow four steps to prepare for and complete their goals. Let’s look at each step and how we can apply it on and off the long distance trails of life.

Know your expenses

First, you must know your annual expenses. Add up the amount you spend every year on all your major expenses, such as rent/mortgage, telephone, clothes, education, utilities, entertainment, transportation, fitness centre, and booze. There are software programs (e.g., Quicken and MS Money) that help you figure out your annual expenses, and for the frugal, there are free financial web sites (e.g., Finance Yahoo! and MSN Money) as well. The super frugal can get by with just a pencil and paper! It doesn’t matter what method you use, and you don’t need an MBA or a CPA to figure this out. Just get a rough idea. Are you spending N3m a year?; N5m a year?; N10m a year?; N20m a year?; or just N200,000 a year?

Continue to save despite the odds

Armed with that number, you can determine when it’s safe to summit. The more cash you have stowed away, the better you will weather downturns. How much cash is enough? The last recession in Nigeria lasted for 15 months. Therefore, saving a year’s worth of expenses will provide a sufficient buffer to weather nearly any recession. Once you have that level of protection, you can confidently adopt upgrades, as long as you maintain that one-year buffer. You can summit without fear. As a result, you will have the freedom to do what you love. Best of all, you’ll finally get to buy that deluxe barbeque set that your wife has been resisting.

If you live below your means and you control your desire to upgrade, you probably won’t notice recessions. Even if you are laid off, you won’t have to change your way of life. If you’re used to eating out twice a week, driving a Lexus, and schmoozing at the golf club, then you can still do that because you’ve saved a year’s worth of expenses. Although this will chew into your savings, you won’t have to tighten your belt (or at least far less than those who were overextended).

On the other hand, those who constantly push the envelope of upgrades and live on credit will have to retrench their way of life significantly. The process of cutting back is depressing for anyone. That’s why living beyond your means is so risky – you’re bound to get disappointed.

Resisting upgrades

Most of us don’t have a year’s worth of expenses saved. We feel pretty good if we have a month! Getting a year’s worth of expenses saved requires resisting every tempting upgrade until your life becomes highly inconvenient without it.

Always calculate nominal costs

Get into the habit of calculating the nominal costs of a reoccurring expense before committing to it. Figure out how much the subscription will cost you over a year, or even five to 20 years. When the next salesman tells you, “Hey, it’s only N500 a day!” remind yourself that it’s N182,500 a year, and ask yourself if that extra N182,500 at the end of the year would be nice to have in the bank. Or you can suggest to the salesman that if it’s only a N500 a day, then why not just give it away?

Understanding Dormant Bank Account

YOUR bank account becomes dormant if you don’t use it to perform any transaction for two years. Such transactions include withdrawal of cash at a branch or Automated Teller Machine (ATM), payment by cheque, transfer of funds through Internet banking, mobile banking or ATMs, receiving dividend on shares or the interest of your fixed deposit in your savings account.

Causes of Dormant account

According to data from the Nigeria Interbank Settlement System (NIBSS), there are 36.7 million dormant bank accounts in Nigeria as at December 31st  2017. The factors responsible for this huge number include illness and death. Also, ownership of multiple bank accounts has led to abandonment of some of the bank accounts that eventually became dormant.

What happens to dormant bank accounts?

The contents of a dormant account remain in place two years after you perform the last transaction. If you do not perform transactions in your account for an extended period and your bank has tried and failed to contact you over the required period of time the bank will qualify the account has dormant.

A dormant account can also generate debt. This is because it is still subject to fees, maintenance charges and other charges the bank may levy while you were using the account. If your account does not yield interest, such fees or charges can erase the balance of your account over time or even put your account in the red. In the case of savings and other interest-earning accounts, the fees can yield proceeds, depending on the starting balance. The fees and charges will continue to be debited from your account.

How to claim a dormant fund

According to guidelines issued by the Central Bank of Nigeria (CBN) in October 2015, on banks’ management of dormant accounts, the apex bank stated: “Three months to dormancy, the bank shall notify the account holder of the status of the account. For individual accounts that the bank cannot reach the account holder during the three (3) months period, it shall contact the next-of-kin to assist in locating the account holder(s). “This will be done within one month after the account has been declared dormant. For corporate accounts, the bank shall contact the directors of the entity or seek information from the Corporate Affairs Commission on the Directors.”

When you have been notified by your bank on the dormancy of your account, the next thing you should do is to first get in touch with your bank. They will check your account’s status and track down your funds.

The best way you can prevent an account from being dormant is to either keep using it for transactions or to close it yourself manually.

Source: Vanguard Newspaper

Hire Purchase

In business one requires different types of resources varying from simple tools to big machineries, men power, land, finance etc. The tools and machinery and such assets may be needed for a temporary period or a very long period. One may have adequate finance to purchase those or may borrow finance for fulfilling the need. But some may neither have adequate finance nor are in the position of borrowing the sum. What alternative is left to them? They can acquire the asset on rent, on credit, on installment or can go for hire purchase. They simply need to enter into an agreement.

Hire Purchase System

Hire purchaser takes the possession as soon as an initial installment of the price is paid but the ownership is obtained only after all the agreed number of subsequent installments are paid. However in case of default, the vendor can take back the possession of goods. It is also relevant to state that the sums paid by the hire purchaser, prior to the repossession of goods by the hire vendor, are treated as hire charges for using the property and the same are never refundable. The installments include interest and depreciation charges.

A hire purchase agreement differs from a credit-sale agreement and sale by installment because under these transactions ownership passes on signing the contract. Under this method, the purchaser does not need to spend the entire amount in one go or borrow a large amount of money, rather can procure the right for the immediate use of an asset. It is a financial facility that permits the use of asset in return of regular payments without transferring the ownership. In addition, the hirer acquires the right to buy the asset, after the use of an asset for a particular period on paying a small or nominal amount of money.

The acquisition of asset, specifically the expensive capital asset, calls for careful financial planning. There is no point making outright cash payment, but prudent to adopt the ways of spreading the cost over a period of time to match or coincide with that of generation of revenue by business. The hire purchase system is believed to be the most common source of finance for investment in capital assets.   

The assets that are suitably financed through this method are like:

• Tools
• Plants and machinery
• Cars
• Commercial vehicles
• Agricultural equipment
• Computers including software packages
• Office equipment, etc.

The system of hire purchase is governed by the Hire Purchase Act 1965.  This Act defines a hire purchase as "an agreement under which goods are let on hire and the hirer has an option to purchase them in accordance with the terms and conditions laid in the agreement”. The agreement defines very clearly and specifically the terms and conditions to be followed by the hirer and the owner:

1. The owner of the goods would pass them to the person who would pay an agreed sum of amount in cash or by cheque as specified or agreed upon, in the specified number of periodic installments;
2. The ownership of such goods would pass to such person only after the payment of last installment by the hirer in the manner as agreed upon;
3. The hirer has the right to terminate the agreement at any time before the transfer of such property.

Terms used in Hire Purchase Agreement

There are many terms that are used in hire purchase transactions and accounting, but only few are explained here.

1. Hirer: Also known as hire purchaser, the one who purchase goods under hire purchase agreement
2. Hire Vendor: The person who sells goods under hire purchase agreement.
3. Cash price: It is actual price of goods charged under normal cash sale or the price at which the goods may be purchased by hirer for cash.
4. Down payment: Down payment means an initial payment payable by the hirer at the time of entering into a hire purchase agreement.
5. Hire purchase price: The total amount payable under the terms of hire purchase agreement in the form of down payment and installments. In other words, the total of down payment and installments is called hire-purchase price. Hire purchase price = Down Payment + Installments. Since, installments are spread over a longer period, the seller charges interest and it is included in the aforesaid installments.  Hence installments include payment towards cash price financed and interest on the amount financed. Hire-purchase price = Cash Price + Interest
6. Hire purchase charges: Hire purchase charges are the difference between hire purchase price and cash price.  These charges are known as interest.

Calculation of Interest

The hire purchase price consists of (a) payment towards cash price, and (b) the interest.  The interest is charged on the unpaid cash price, which decreases with every installment paid.  Hence the amount of cash price and interest is not the same even in equal installment for the simple reason that on every next installment, charge for interest decreases and payment for principal increases.

Issues to look out for in a hire purchase (HP) agreement

Hire purchase (HP) is a way of buying equipment without having to pay for your purchase in one go. Payments of capital and interest are typically spread over three to five years. However before you go ahead and sign on the dotted line it is worth asking a few questions.

Before you sign any agreement, you need to know:

• How long will the agreement run for? How many installments will you be committed to paying?
• Are all the installments the same size, or - for example - are you paying less initially but a large payment (a 'balloon payment') at the end of the term?
• What does the installment payment cover, exactly? For example, does it cover servicing, or consumables?
• Who has responsibility for insuring the equipment? If you, is the cost of insurance included in your payments, or do you have to arrange that separately?
• Is there a usage (e.g. 'cost per copy') charge, and if so, what exactly is it? Will it be based on your actual or your estimated use? (Be careful: it is easy to be landed with a very expensive contract because of confusion over usage charges.)
• If the payments cover the use of consumables (for example, toner for photocopiers), exactly what consumables will be delivered, and when? What are the delivery charges, if any?
• Who has responsibility for keeping the equipment safe?
• What happens if it does not work properly?
• What happens at the end of the agreement? Does the equipment belong to you? If not, can you extend the agreement, and if so, is this at a reduced rate? Alternatively, do you have to give notice to end the deal?
• What is the tax position? (If you are buying the equipment, you should be able to claim capital allowances; if you are leasing it, you should be able to set the lease payments against your taxable profits).
• What is the position on VAT?
• Do you have to show your financial liability on your balance sheet?
• What happens if you cannot keep up the payments?

Using HP to purchase items for your business is like taking out a loan secured on the equipment. Always compare the cost of hire purchase with that of other finance, such as a bank loan.