HOW TO MANAGE FINANCE

01Fewer than one in 10 British consumers are using neobanks to manage their money

UK adoption of digital-only challenger banks is currently paltry: Fewer than one in 10 British consumers are using mobile-only banks to manage their money, according to survey data from YouGov.

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However, this apathy doesn't extend to all forms of digital banking, as British consumers appear inclined to use digital banking offerings from their traditional banks. A majority (53%) of respondents say that they use a mobile banking app from a traditional bank or building society, while 48% say that they use an online banking offering from a traditional bank or building society.

The relatively solid use of digital banking in general suggests that the big challenge for neobanks is not converting consumers to digital platforms, but getting consumers to give digital-only banking a try. Less than one-quarter (23%) of UK consumers are actually uncomfortable with online banking services, per YouGov data, leaving the neobank business model with a strong majority of UK consumers to target.

And given the popularity of mobile and online banking offerings from traditional banks, the hurdle that neobanks will need to deal with first and foremost is convincing consumers to dip their toes in the water of digital-only banking.

Here are two key strategies neobanks could deploy to motivate customers to give them a try:

Offer new sign-up incentives like perks or bonuses. Perhaps the most straightforward way to pull in customers is to offer a clear incentive to new sign-ups. This could be a promotional interest rate for deposits that is well above the market average (as Australian neobank Xinja is doing to attract deposits), or it could even be as drastic as a cash bonus deposited into newly opened accounts. A clear and present reward for signing up could be enough to get prospective customers' attention and get them to open an account, after which the neobank would have a chance to impress the client with its features and service. The drawback, however, is that incentives can rack up costs, a serious obstacle for neobanks as they already struggle with profitability almost universally.

Reduce barriers to access existing account benefits. In many cases, neobanks will set deposit or transaction thresholds or other requirements that customers have to meet in order to access certain lucrative benefits. For example, US neobank Chime offers overdraft protection of up to $100 for users who direct deposit at least $500 per month into their account. If neobanks lower or remove such thresholds, it could help customers who have some curiosity or only want to experiment with a neobank to get a better feel for the full customer experience — and to do so without requiring a significant investment on their part. The downside to this approach would be that such thresholds offer neobanks a way to nudge customers to use their neobank account as their primary account, and primary account status is an elusive and important goal for neobanks.

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02

How to Manage Financial Risk When Starting a Business in Retirement

Part of the America’s Entrepreneurs Special Report

Modern retirement is no longer a career-ending event, but instead, often a professional reinvention. “For many people, retirement is a time to take on an encore career or start a new business,” says Jamie Hopkins, director of retirement research at Carson Group.

Just because retirement can be a great time to start a business, that doesn’t mean entrepreneurship at that time of life comes without its risks. One of the biggest: time.

“The risk of starting a business in retirement is that you don’t have time to recover from large financial hits,” says David Deeds, Schulze professor of entrepreneurship at the University of St. Thomas and executive editor of the EIX — Entrepreneurship and Innovation Board. (Full disclosure: the Richard M. Schulze Family Foundation and EIX help fund Next Avenue.)

Start small, test ideas on a digital audience or professional connections if possible, and then scale if successful.

So, while in the planning stages of your part-time retirement business, start thinking about how you will manage the risks.

“To be in the right financial condition to start a business, make sure you have enough liquidity [the ease of getting cash],” says Brandon Renfro, a financial adviser and assistant professor of finance at East Texas Baptist University, in Marshall, Texas. “This means considering not just the money you invest, but the financial commitments, like loans and equipment leases that you’ll take on.

To mitigate financial risk, it’s wise to consider starting a business that’s not very capital-intensive, like consulting or digital services. “You can do part-time consulting in your industry and selectively take on projects that appeal to you,” says Mike Hennessy, CEO of Harbor Crest Wealth Advisors in Fort Lauderdale, Fla.

5 Strategies to Minimize Risk in a Part-Time Retirement Business

While some financial risk is unavoidable as a retiree starting a business, the following five strategies can give you the best chance of succeeding:

1. Get smart about startup capital. Morgan Taylor, chief marketing officer for LetMeBank, a tool to find a bank or credit union, advises that you “set aside the amount you’re prepared to lose. Treat this as a non-available income. If you lose it, you lose it.”

2. Minimize your startup costs. Start small, test ideas on a digital audience or professional connections, if possible, and then scale if successful. Your goal should be to keep initial expenses and operations lean.

For example, look for low-cost marketing opportunities like networking events; don’t invest in expensive equipment you can borrow, like a printer or scanner and use what you have — like turning a corner of your living room into an office rather than renting space.

3. Avoid withdrawals from your retirement accounts. Says Renfro: “You’ll need money to acquire the productive assets for your business. If you withdraw that money from your retirement accounts, which is most likely where it is, then you’ll owe taxes on that distribution.”

And then, if you are already near the top of your tax bracket, the withdrawal could push you into the next higher bracket, he adds.

If you must tap your retirement account to start the business, Renfro suggests spreading the withdrawal over the course of two years, to help avoid tax-bracket creep. “You can do this fairly easily by withdrawing in the last month or two of the first year and then taking the rest out in the beginning of the next,” he says.

4. Consult a pro regarding your income taxes. If you’ve never run a business, you may not realize that taxes will become more complicated. “Your employer won’t be automatically taking taxes out of your [paycheck],” says Taylor.

You are the employer, which means you’ll need to set aside the proper amount of income from your business to pay the Internal Revenue Service. This means you’ll have less in liquid cash, because you’re essentially paying taxes in advance.

This may require more planning if you’re on a fixed income, so meet with a financial adviser to get a grasp of tax requirements with the new revenue from your business, as well as how much to set aside for tax payments

5. Devise an exit strategy. Lastly, long-range forecasting is necessary. “Since you don’t have a thirty-year time horizon anymore, you need to go into the business with a clear set of goals in sight,” says Hopkins. “If you only plan to run the business for five to ten years, plan on how you will sell, monetize or wrap up the business when you are done.”

(This article is part of America’s Entrepreneurs, a Next Avenue initiative made possible by the Richard M. Schulze Family Foundation and EIX, the Entrepreneur and Innovation Exchange.)

By Jessica ThiefelsJessica Thiefels is founder and CEO of Jessica Thiefels Consulting. She's been writing for more than 10 years and has been featured in top publications like Forbes and Fast Company.  She also regularly contributes to Virgin, Business Insider, Glassdoor, Score.org and more. Follow her on Twitter @JThiefels and connect on LinkedIn.

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03

'Money $ense': How to manage a gift of money or other asset

PERHAPS YOU received an extra special gift this year such as a large sum of cash or other property or maybe even some stocks. If you are (or anticipate being) among this group, here are some tips to help you manage your gift.

Develop a strategy. Take time to breathe. Understand just how much you have been gifted and the form it is going to take. Did you receive a portfolio of stocks? Or maybe a rental property? Each has different implications.

Take time to review your financial goals and how your gift might help you reach them. Are you on target for retirement? How high is your debt? Developing a budget to see where you currently spend your cash is a great start. Sometimes the best first step is to put the money in a bank account until you have your situation sorted through.

Consider paying down your debt. This is the time to review your debt. Near the top of the payoff list should be high interest rate credit card debt. If your mortgage rate is relatively low, it may not be worth paying off as the money may earn more if invested.

Fund an emergency account. The most commonly mentioned amount for an adequately funded emergency reserve is at least three to six months of living expenses that you could tap at a moment’s notice. You might need more if, say, you are self-employed and your income isn’t necessarily steady.

Make savings a priority. This could be for retirement, education, or other life expenses. Review your goals to determine the best place.

Don’t rush to spend big. While purchasing a luxury sports car may be tempting, the money might be better saved for other goals. Achieving financial independence is a good one. The trick is to avoid an impulsive decision that you might regret down the road.

Develop an investment strategy. Consider the time you have until you will use the money. For example, retirement may be a longer term goal while education money may be needed five years down the road. Your appetite for risk is another factor.

The idea here is to make the gift work for you without unnecessary stress. Educate yourself. There is plenty of material on the web and at the bookstore. Given this, read widely before making any choices, whether they involve which mutual funds to buy or how to fund retirement.

Have a tax plan. Your funds could open up tax opportunities you may not otherwise have had. For example, you might be able to increase your contributions to your workplace retirement accounts, as you will have other funds to live on.

You might be able to make Traditional or Roth IRA contributions. Your investments might generate interest, dividends and capital gains, all of which will impact your tax picture.

Address your past. If you have developed some bad financial habits that have caused you issues in the past, now is the time to seek competent help. A gift is a great opportunity to set your financial future going in the right direction. Past bad habits shouldn’t get in the way.

Splurge thoughtfully. Though we did say don’t rush to spend, it is OK to have a little fun. Reason and moderation are the key words here.

Get help. Consulting a certified financial planner, investment professional, lawyer or accountant can help you create a plan and monitor it down the road. You will have a better idea of your options, entire financial picture and your goals. Having a team of people can help you now and going forward.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.