Depending on your background, entering your 20s can be a bit of a precarious time. Among the things you’ll need to get to grips with is the idea of having your own money to spend. Whether you’ve just left education, or you’ve been in the world of work for a while, it pays to understand finance. The bad news is that your financial education, if you’re like most people, won’t have amounted to much. The good news is that you’ve spotted the problem early, and you can look to try to correct it.

You might put money aside in an ISA, or some other optimised savings account. You might, at this point, be looking around and wondering how you compare to everyone else (which is only natural). Research indicates that around 15% of people in the UK don’t have any savings at all, while 33% have savings of less than £1,500. If you’re young, then you’re more likely to fall into these brackets.

We should note, however, that not everyone’s starting from quite the same level. If you haven’t gotten a leg up from your family, then you’ll be at a disadvantage – but it needn’t be a lasting one, if you develop the right financial habits.

Make it a habit

Keeping your spending in check is a lot like keeping your weight under control, or learning a musical instrument. The things that you do every day without thinking will tend to add up to your long-term success or failure. Build the right financial habits, and you’ll be in good shape. Avoid frivolous spending. Ask yourself whether you really need a given product or service before you buy it. Don’t mistake an asset for a liability, and don’t kid yourself about the difference between the two.

Be realistic

You probably don’t want to waste your twenties by living a monastic lifestyle, especially if your friends are constantly going on holiday or going out in town. So, set yourself realistic limits. In some cases, you might be able to save on the necessities in creative ways. If the cost of learning to drive is prohibitive, for example, then you might look at learner driving insurance, and practicing in your own car.

Emergency funds

You never quite know what the future will hold – and you don’t want to have to sell anything when disaster strikes. If you do, then you’ll be forced to incur the costs an inconvenience that go along with selling. Think about how long you’ll be able to survive on the cash in your current account, and maintain the balance accordingly.

Saving goals

Your spending should ideally be goal-oriented. Think about what you’d like your credit score to look like, and think about how many cards you want to take out. If you think you’re going to have trouble keeping track of your funds, then you might look into budgeting apps that might help you out. As a benchmark, you might look at setting aside around ten per cent of your income for the future.

Retirement savings

While you might not be thinking about your retirement quite yet, it’s worth setting a little bit aside for this period in your life. It makes economic sense, as the government will inflate your savings by up to 25%, up to £4,000 saved every year. This lasts right up until you’re 40 – so, get saving now!

Running a business can come with great rewards, but it’s not without risk – something businesses in the UK have become all too familiar with in recent years. Living through unprecedented times has made business owners more aware of the potential impact that macroeconomic events, staffing issues, and supply chain problems can cause. While the risks faced by businesses will differ depending on their focus, one thing they’re likely to have in common is FX risk.

In this article, Thanim Islam, Head of FX Analysis at Equals Money, outlines the risk factors threatening UK SMEs and shares his top tips on how to minimise their FX exposure.

All businesses that make transactions, payments, or purchases in foreign currencies are exposed to FX risk. Whether it’s through selling on an international site like Amazon or importing from abroad, FX exposure is an unavoidable part of international trade. While larger, more profitable businesses are better positioned to weather the volatility of the FX market, for those operating with low margins, even slight currency movements can wreak havoc on their bottom lines.

For SMEs, where cashflow is the lifeblood of their businesses, FX exposure is particularly hazardous. As of last year, 99% of UK businesses were classified as SMEs, making this a risk affecting most of the business population.[1]

What are the key FX risks threatening UK SMEs currently?

The threat of ‘sticky’ inflation remains, meaning profit margins for small businesses may well continue to be tight vulnerable to the impact of FX volatility. This isn’t something to be underestimated and FX exposure putting pressure on already restricted margins has the potential to even wipe out businesses all together.

So, what kind of currency movements should SMEs be looking out for?

Since March, sterling in general has performed very well, which has seen GBPEUR rise by 3.18%, GBPUSD by 7%, GBPCAD 4.17%, and GBPAUD by 8%. These are detrimental moves for SMEs who need to convert foreign currencies back to pounds.

Businesses that can forecast their costs and revenues accurately can mitigate this kind of risk to their profit margins through risk management strategies.

Top tips for minimising your FX exposure

Always plan ahead

If you are able to forecast your expected future currency needs then this is a great starting point in minimising the negative implications of currency moves.

Once you know how much of a currency you may need, you can enter into a forward contract. Forward contracts, a form of currency hedging, are an agreement in foreign exchange dealing that allows you to guarantee, or “lock in”, an exchange rate for the sale or purchase of a specified currency for up to 24 months in the future. Whatever rate you book when the contract is agreed, you’re guaranteed that rate for the agreed time of settlement, thus mitigating the impact of market fluctuations. This can provide the stability and foresight that’s key for SMEs looking to plan and grow while taking market uncertainty into account.

Don’t forget inbound payments

It’s not just businesses that make purchases from abroad who could be losing out. If you’re accepting payments from a foreign customer, you also need to make sure you’re getting the best deal when the currency is converted in their accounts. When receiving large payments from a different currency through traditional banks, businesses run the risk of losing significant amounts of money during the conversion due to poor exchange rates. It’s important to consider your FX exposure holistically including your incoming payments to make sure you’re protecting your business from unnecessary losses.

Decide your risk appetite

While some small businesses may wish to play it safe and mitigate as much exposure to market fluctuations as possible, others may wish to gamble on FX rates in the hopes of facilitating growth. Deciding whether or not to take this risk will depend on your business’s margins, and the amount of revenue that’s tied up in international trade. It can be challenging for a small business to make this call, but by working with a payments partner who offers expertise in FX, businesses can gain insight that better informs their decision -making process.

While FX risk is an unavoidable part of business transactions, it’s important for SMEs to recognise the degree of risk they face and consider implementing appropriate risk management strategies. This may include seeking advice from FX and financial advisors, exploring hedging options, diversifying markets, and staying informed and ahead of global economic trends and exchange rate movements. Just a 15 minute conversation with an FX advisor could be enough to put in place an FX strategy that can alleviate FX pressures on your small business.

[1] Gov.UK,  Business population estimates for the UK and regions 2022: statistical release, October 2022.