Manage Your Financial Life

Just Starting Out

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During your early years in the workforce, you will encounter many milestones—first couple of jobs, first couple of homes, grad school, getting engaged, buying a home, starting a family—so being organized and knowledgeable about your finances is essential.  Explore the blog articles below for helpful advice during this stage of life.

Simplify Your Bills and Your Life

Get Organized

According to a study by Mercator Advisory Group, more consumers pay bills online than by mail or in person. The pandemic and subsequent rise in remote work and relocation helped to accelerate this trend. When it comes to paying bills online, you have choices. You can (1) use your bank’s bill payment portal; (2) go to each biller’s website and make a payment; or (3) sign up for a non-bank bill pay service. You can arrange automatic payments directly from your checking account for recurring bills such as rent, mortgage payments, and utilities. You can use your credit or debit card for smaller recurring payments like subscriptions. Paying bills online has numerous benefits. The two most important benefits are convenience and simplification. Your records will be digital and easier to maintain and organize. Each person’s financial situation is unique, as is their comfort level with technology. For most bills, using…

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Understanding Financial Credentials

Educate Yourself

Financial professionals may possess a variety of certifications and designations. These credentials instill a sense of competency. In recent years, however, the number of financial credentials has expanded significantly. If you choose to work with a financial professional, you should understand what these credentials mean. The prestige of certifications and designations and their usefulness to clients varies considerably. The Financial Industry Regulatory Authority, or FINRA, has a designation lookup feature on its website, https://www.finra.org/investors/professional-designations. The tool is beneficial, especially because you can compare different designations. FINRA does not endorse or recommend any of these designations. The list of designations on the FINRA website is extensive. Currently, there are more than 200 listed. How do you determine which are the most meaningful? Look up what is required to achieve and maintain the various designations. If you need help with retirement planning, what are the prerequisites for becoming a Certified Retirement Financial…

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Your Creditworthiness

Analyze Finances

Building good credit is essential. You can pay for large expenditures over time using student loans, mortgages, car loans, and leases, but how you handle these and other debts significantly impacts your net worth. Also, how you manage these debts, plus credit cards and cellular and utility bills, profoundly affect 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. Remember 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 “good enough.” The first step in evaluating your creditworthiness…

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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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