Manage Your Financial Life

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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.

Think About Cash Flow and Net Worth

Analyze Finances

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…

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Tax Time Approaches – Get Organized

Essential Home Office

Preparing your taxes is not a fun task. It can be significantly less unpleasant if you are organized. Your taxes involve a lot of documents, and you must keep good records. In addition to your W-2 (or 1099-Misc forms, if you are a contractor), you will need supporting documentation related to your savings and investment accounts. A 1099 is a statement that details the dividends, interest, and capital gains earned during the year. 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…

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Watch Out For Fraud

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During turbulent times, people are often anxious, preoccupied, or distracted. Not surprisingly, there is a positive correlation between turmoil and the incidence of cybercrime. 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 chance of identity theft. In that…

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Prepare for the Unexpected

Save and Invest

Experts recommend that you have an emergency reserve equal to six months of living expenses. It should be in a safe, stable vehicle such as a savings account or a money market fund. If you don’t have a sufficient reserve, make it a top priority. The easiest way is to address the shortfall 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 your overall liquidity. Liquidity is a term from economics that indicates how easily an asset can be converted to cash. Some asset classes are more liquid than others. Cash and money market funds are the most liquid assets. Stocks and bonds are usually liquid. During periods of financial turmoil, however, you may not want to convert these assets…

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Understanding Risk

Educate Yourself

During the pandemic, we have seen a rise in the number of indiviual or retail investors. We have also seen an increase in the number of active traders. Firms that aim to democratize the markets have helped to fuel this trend. It is important to note that trading and investing are not the same. Traders are focused on the short run, whereas investors have a long-term perspective. Whether you are a trader or an investor, you need to understand the different types of risk you will encounter. Risk is the variability, or volatility, of expected outcomes. The weather is a good illustration. A forecast gives an average, or expected, temperature for a city on a certain day of the year. In some regions, such as Southern California, there is less variability, or volatility, in temperature for a given day of the year. In other areas, such as Chicago, there is much…

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Prudent Use of Technology

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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:…

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Prioritize Your Goals

Save and Invest

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…

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Why Investment Fees Matter

Educate Yourself

Understanding how much you are paying for investments and investment advice is essential. Fees reduce your return. Over time, high fees can hinder the growth of your assets. In the investment arena, fees are usually charged as a percentage of assets quoted in terms of basis points. A basis point is one one-hundredth of 1 percent, or 0.01 percent. In other words, 100 basis points equals 1.0 percent, and 50 basis points equals one-half of 1 percent, or 0.50 percent. There are many kinds of fees. Some fees are transaction-based: these compensate brokers for putting clients in an investment or for executing a trade. With a commission, the brokerage firm charges a fee for each transaction. In contrast to brokers, who charge commissions, fee-based advisers charge an annual fee based on a percentage of assets under management. The adviser is paid to manage your money and not to execute trades. If the…

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Creating an ICE – In Case of Emergency – File & Plan

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An In Case of Emergency, or ICE, File and Plan includes vital contact, financial, and legal information. These tools are invaluable during a crisis—just like a roadmap of your financial life. This is especially true when someone must act on your behalf. Pulling together your ICE File and ICE Plan takes some effort. As with all emergency preparation, this groundwork is most effective if it is in place before an emergency happens. Moreover, you need to discuss the File and Plan with your key person(s) – executor, power of attorney, or someone you trust implicitly to help handle your financial affairs. These safeguards are not useful unless someone knows that they exist and how to access them. You may think that your financial profile is simple. Walking through this exercise ensures that your bases are covered. Moreover, with time, your life—and your financial life—will evolve and become more complex. Life…

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Spending: Essential or Non-Essential?

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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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