Manage Your Financial Life

Nancy Doyle

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Nancy Doyle, CFA, is an author, speaker, and advocate for financial literacy. She has thirty years of experience in wealth management, investments, corporate finance, and consulting. She is a graduate of Georgetown University and received an MBA from University of Michigan’s Ross School of Business.

The Power of Compounding

Educate Yourself

I have heard people refer to it as “The magic of compounding.” Personally, I don’t like the term “magic.” Magic implies something mystical, beyond our comprehension. Rather than “magic,” compounding is just math – incredibly powerful math – but it is just math. Compounding means that there is growth on the growth. For example, an investment of $100 that appreciates 7 percent will be worth $107 at the end of the first year. If the investment grows 7% percent again in the second year, the return would be 7 percent on $107 or $7.49. 7% growth on $100.00 = $107.00 7% growth on $107.00 = $114.49 In year two, the dollar amount increase exceeds that in year one. You have a 7% return on the original $100 and a 7% return on the $7 you earned in year one. Each year, you earn a return on the original amount ($100) and…

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Evaluate Your Creditworthiness

Analyze Finances

Building good credit is essential. You can pay for large expenditures over time using student loans, mortgages, and car loans and leases, but how you handle these and other debts has a significant impact on your net worth. Also, how you manage these debts plus credit cards and cellular and utility bills has a profound effect on your credit score. Credit scores range from 300 to 850. In general, scores above 700 are good, and scores above 800 are excellent. Not only does your credit score determine your interest rate, but it also determines whether or not you will be able to get credit if you need to borrow. Keep in mind that each lender has different requirements for a minimum credit score that they will approve for potential borrowers. Depending on the lender and the type of loan you are requesting, being in the “Good” range may not be…

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Yield and Total Return

Educate Yourself

For any asset, yield is the income earned (interest or dividends) divided by the price of the asset, such as a bond or a share of stock. Price and yield move in opposite directions. If a $100 bond earns 5 percent interest, it earns $5 on a $100 asset, or $5 divided by $100, which is a 5 percent yield. If the price of the bond increases to $105, the yield declines to $5 on a $105 asset, or 4.8 percent. $5 ÷ $100 = 5.0% and $5 ÷ $105 = 4.8% If a share of stock is worth $50 and pays a $1 dividend per share, the yield is $1 divided by $50, or 2 percent. If a company increases its dividend, then the yield will also change. Raising the dividend to $1.10 results in a 2.2 percent yield. $1 ÷ $50 = 2.0% and $1.10 ÷ $50 =…

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What is Your Time Horizon?

Save and Invest

Life transitions, such as college graduation, are a good time to think about financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may need a bigger emergency fund in some circumstances. You may face hurdles when looking for a new job,…

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Spend Less; Save More

Analyze Finances

Finding ways to save more starts with finding ways to spend less. Analyzing where your money goes every month is a great place to start. Take a close look at your non-essential expenses or “wants.” These are often tied to lifestyle choices. Reducing non-essential outlays will free up cash you can use to pay down debt, shore up emergency fund reserves, and save for retirement. Articulating a plan and exercising discipline increases the likelihood that you will attain your goals. Analyze Your Spending There are a vast number of personal finance websites and apps. Linking your transaction activity to one of the tools helps track your spending on a real-time basis – overall spending levels, spending by category, etc. There are also data security considerations. If you choose a website or app, select a leading one with excellent security. Whereas I am in favor of budgeting tools to analyze spending,…

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Financial Jargon – You Asked…

You Asked - I Answered

Question: What is the VIX that I keeping hearing about in the financial news? Answer: The Chicago Board Options Exchange, or CBOE, created the VIX® to measure expected volatility for the US stock market. It is calculated based on the prices of put and call options for the S&P 500® index over a rolling 30-day period and is the global standard for measuring volatility. The VIX® is also known as the Fear Index. It spikes when markets are turbulent, as has been the case in the past two weeks.

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Benefits of a Financial Spring Cleaning

Get Organized

Tax season is upon us, which is the perfect time for a financial spring cleaning. Just like when you go through your closet to determine what to keep and what to donate, you can do the same with your financial life. Get ready Designate a room or an area for your work. Set out a staple remover and stapler, sticky notes, pencils, paper clips, and file folders as well as bins for recycling and documents to be shredded. Gather your information Gather all documents and papers relating to financial, tax, and legal matters, including bank, investment, and credit card accounts; insurance; mortgage, car loans, student loans; tax returns; birth certificates, marriage certificates; wills, trusts, and powers of attorney; and information related to your home and big-ticket purchases. Determine what to keep It is time to sort and determine where to keep essential information and what to recycle or shred. For…

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Investing in Others

Family Office Approach

Be Thoughtful About Giving Back Consider having a family giving policy or charitable mission statement and prioritize the causes you wish to support financially. Evaluate donations the same way that you analyze investments. Look for organizations that use resources efficiently so your donation dollars will have the biggest impact. Analyze the percentage of donations to an organization that are used to cover administrative and fundraising expenses. The percentage of donations spent on administration and fundraising should be available in a charity’s literature. You can visit Charity Navigator at http://www.charitynavigator.org and look up a charity. The Better Business Bureau also rates charities. Keep Track of Donations Keep track of this year’s donations and the acknowledgments, thank you letters, and emails, in a current year tax file, which makes it easier to recall donations at tax time. Note the date, amount, and check number (if you wrote a check) on the…

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How Much Coverage?

Good to Know

It is a new year and a new decade. Resolve to get your financial house in order. Making sure that you have adequate insurance should be an item on your “to-do” list. The nonprofit Life Happens teaches people about life insurance and disability insurance. When it comes to insurance, there are many considerations. Your situation and life stage are unique. The site offers calculators so consumers can determine but how much coverage they require. Being thoughtful about your insurance needs helps protect your loved ones and your budget. Check out the site LifeHappens.Org

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Strategies to Stay Out of Debt

Analyze Finances

Establishing sound personal finance practices while you are young is essential. For those just starting out who are new to money management, you need to consider your financial future. Discipline and having the right mindset will help you stay out of debt and achieve your financial goals. Track and Analyze Your Spending The first step is to analyze your spending to see where your money is going. Limit yourself to one or two credit cards, using one for most day-to-day purchases. This makes it easier to track spending and your total credit card balances. Having multiple credit card accounts is a major reason that card debts grow. As credit card balances climb, it also hurts your credit score. Even if you can pay off your balance every month, using more than 30% of your credit line has a negative impact on your credit score. Peer-to-peer (P2P) networks offer convenience and…

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