Technology is an essential part of how we transact and manage our financial lives. We are more informed and have real-time access to our personal finances. Along with convenience, however, comes new risks. 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:…
Prioritize Your Goals
Many recent graduates are moving into the work force. Life transitions often involve a lot of decisions – housing? car? benefits? budget? This is also a good time to consider your 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…
Spending: Essential or Non-Essential?
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,…
Prioritize Financial Goals
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,…
Pay Attention – Fraud is on the Rise
During turbulent times, people are often anxious, preoccupied, or distracted. COVID-19 is no exception. Not surprisingly, there is a positive correlation between turmoil and the incidence of cybercrime. During 2020, identity theft and financial frauds have been on the rise: hackers and scammer prey on people’s fear and vulnerability. 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, and so 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…
Net Worth and Cash Flow
Establishing sound personal finance practices while you are young is essential, and thinking about cash flow and net worth is a part of that. For those who are new to personal financial management, you need to think of the long run. Discipline and having the right mindset 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…
Technology: Convenience and Risk
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, and so 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…
Think About Cash Flow
Establishing sound personal finance practices while you are young is essential. For those who are new to personal financial management, you need to think of the long run. Discipline and having the right mindset will help you stay out of debt and achieve your financial goals. 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, at the end of the year, you were able to save money or your debts have declined, you consumed less than you earned. 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 depends not only on…
Needs vs. Wants
To develop a realistic budget, you must start with an analysis of 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…
Focus on Your Net Worth
Managing your financial life involves making a lot of decisions. When the dollars involved are material, you should always think about the repercussions for your net worth. This practice will have a profound impact on your long-term financial well-being. In Accounting 101, you learn about a balance sheet. A balance sheet is a financial statement that lists your assets, your debts, and your net worth. Your assets are anything you have of value, such as your home, bank account, investments, 401(k), and car. Debts include any outstanding liabilities or obligations such as a mortgage, student loans, car loans or leases, and credit card debts. Your net worth is the difference between your assets and your debts. In other words, your net worth is an outcome, and you can think of the formula: Assets – Debts = Net Worth If the total value of your assets is higher than the total…