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.

Needs and Wants

Analyze Finances

To develop a realistic budget, you must start by analyzing how you are currently spending money. If budgets are unrealistic or unattainable, they will not work. Analyzing your monthly outlays by type and category is a great place to start. Look at each of your monthly expenses as a percentage of your take-home pay. Assign each expense or outlay to one of three categories: Essentials: things such as rent, transportation, groceries, utilities, insurance, and the like Savings and debts: establishing an emergency fund, saving for retirement, and paying off debts Everything else: travel, entertainment, shopping, gifts Totaling each category – essentials, savings and debts, and everything else – is an excellent diagnostic tool. It shows how you are spending your money and where you can make changes to improve your situation. Take a close look at your nonessential expenses. These are often tied to lifestyle choices and are easier to…

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Investing and Taxes

Educate Yourself

As an investor, you need to understand the impact of taxes. The taxes owed on investments depend on the type of investment account. For tax-deferred accounts, such as 401(k)s and 403(b)s, you contribute money from your paycheck before it is taxed, known as “pre-tax dollars.” In other words, you do not pay taxes on the portion of your salary that goes directly into your 401(k) or 403(b). Moreover, you do not pay taxes on the income or capital gains generated each year. Instead, you pay taxes when you withdraw money from the account. Roth IRAs and college savings plans, such as 529s, are examples of tax-advantaged accounts. You fund these kinds of accounts with after-tax dollars, and you do not get a tax break upfront. After you fund a Roth IRA or 529, the income, appreciation, and withdrawals are tax-free. For taxable accounts, income and capital gains are not tax-exempt or tax-deferred, so…

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Protect Your Financial Information

Analyze Finances

Advances in technology and mobile communication have changed the way we manage our finances. These innovations save time and allow us to be more informed consumers. But the innovations have also introduced new risks and exposures. With time, your financial accounts will grow, as will the potential losses from identity theft and fraud. Review your credit report regularly. You can download your free report and search for errors or indications of fraud at www.annualcreditreport.com. If you will not be in the market for a new loan soon, it is possible to freeze or lock your credit profile to reduce the chance of identity theft. In that case, you need to contact each of the three credit bureaus: Equifax, Experian, and TransUnion. Here is a link to learn more. https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs If you receive a suspicious email, text, or voicemail that appears to come from your credit card company, do not respond.…

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Navigating Tax Season

Essential Home Office

Tax time can feel overwhelming for many people.  Preparing your taxes requires you to manage a lot of information and documents. In addition to your W-2 (or 1099-NEC forms if you are a contractor), you will need supporting documentation related to your savings and investment accounts. A 1099 statement details the year’s dividends, interest, and capital gains earned. Some investments are structured as partnerships and provide a year-end, or annual, K-1 instead of a 1099. A K-1 shows an investor’s share of partnership income for a given year. Transactions that you need to document at tax time occur throughout the year. Therefore, I strongly recommend that you keep a Current Year Taxes folder. As you receive tax-related documents in the mail or from a financial firm’s portal, store them in this paper folder or a similar folder on your hard drive. If you are a contractor, save an extra copy…

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Yield, Return, and Total Return

Educate Yourself

As you evaluate various investment choices, yield, return, and total return are essential considerations. Although the concepts are fairly straightforward, there can be some confusion.  Here is a quick overview. 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…

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Recession Readiness: Emergency Reserves and Liquidity

Save and Invest

Whether you get your information from the traditional financial press or podcasts, most sources are looking for a recession in 2023, especially during the first six months of the year. More than ever, we need to evaluate if we can weather such a storm. Experts recommend that you have an emergency fund sufficient to cover three-to-six months of living expenses. Your emergency fund should be a safe, stable reserve such as a savings account or 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. If you dip into your emergency fund, replenish it as soon as possible. In addition to an emergency reserve, you need to think about liquidity. Liquidity is a term from economics that indicates how easily an asset…

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Focus On Cash Flow To Build Net Worth

Analyze Finances

Focusing on cash flow is key to building your net worth. Your financial well-being does not only depend on what your earn. It also depends on saving and consumption, or how much you keep. Discipline and being mindful about spending will help you stay out of debt and achieve your financial goals. Cash Flow Cash flow depends not only on your income but also on changes in your savings and debts. If, at the end of the year, you have not saved, and your credit card balance has grown, there is only one explanation – you consumed more than you earned. If you were able to save money or your debts have declined, you consumed less than you earned. Net Savings In terms of your take-home pay, you either spend it, consume it, or save it. The difference between income and spending or consumption is your net savings. Your net savings…

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Holiday Tipping Guide

Essential Home Office

The holidays are joyful and also a little stressful. In addition to getting a head start on shopping, plan your holiday tips early. Holiday tips are a nice way to say “thank you” to those who help us out during the year.  Many have questions about whom to tip during the holidays and how much to give.  Here are a few thoughts: For those who help you out regularly – dog walker, trainer, hair stylist, babysitter, piano teacher – tip the equivalent of one service or session. For nannies or housekeepers who work with you more than once a week, consider one week’s pay as a holiday bonus. For teachers or coaches, consider pooling voluntary contributions from parents and putting the funds toward a gift card to be given at the end of the season or at the end of the school year. For other service providers that you use…

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Diversification and Risk

Educate Yourself

When markets are turbulent, people increasingly focus on risk.  It is vital to understand the difference between risk you can control and risk you cannot. The saying “Don’t put all your eggs in one basket” applies to investments because concentration increases risk. Whether you invest your money yourself or work with a professional, never put all your assets in the same basket—the same kind of stock, bond, mutual fund, or other investment. In addition to avoiding concentration, diversification is key to improving investment results. Various asset classes, or types of investments, tend to perform differently under certain market conditions. Some perform better, and some perform worse, depending on what is going on with the economy and financial markets. The best investment strategy is to have a diverse portfolio that includes a mixture of stocks, bonds, and international investments. Diversification across asset classes helps reduce risk; correlation illustrates this benefit. Correlation measures…

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Getting Your Financial House In Order: Helpful Tools

Get Organized

Getting your financial house in order has numerous benefits. You will be more engaged in managing your finances and better prepared if life throws you a curve ball. Most important, you will feel less overwhelmed and less stressed. The In Case of Emergency (ICE) Plan and the Asset Allocation Grid are helpful tools. The ICE Plan creates a roadmap for your financial life, while the Asset Allocation Grid is the dashboard. Invest the time to use these tools. Engagement in our finances is essential. Asset Allocation Grid ICE Plan

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