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.

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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Strategies to Stay Out of Debt

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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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WGN Radio – Saving For Retirement: Start Early, Be Disciplined, and Plan Prudently

Family Office Approach

Compounding investment returns are the gift that keeps on giving. This is the perfect time to re-post the important lessons I discussed as a guest on WGN Radio Wintrust Business Lunch. The topic was how millennials can save a million dollars. It is important to start early and be consistent. Save and invest every year. You also must be disciplined. Once you invest that money, you cannot touch it. Last, use reasonable assumptions for annual investment returns, or what you expect to earn on your money every year. Note – the segment begins at 23:45. WGN Radio Wintrust Business Lunch

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Strategies to Dig Out of Debt

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Want to dig out of debt, but not sure of where to start?  In this post, I’ll fill you in on everything you need to know to create your own strategy to dig out of debt, effectively. First the good news: The unemployment rate is near an 18-year low. Housing values nationwide continue to climb as does the stock market. Now for the bad news: According to the Federal Reserve, total household debt has risen for the 15th straight quarter. This may appear counterintuitive. If the economy, housing values, and stock market are strong, why do consumer debt levels continue to rise? I think there are two reasons. First, upbeat consumer confidence often leads to higher spending and a greater comfort level with taking on debt. Second, as we all make more purchases online and through mobile applications, it is harder to track overall spending. If not monitored closely, spending…

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Nancy Doyle’s guest column in the Daily Herald Business Ledger

Analyze Finances

Those just starting out in the work force face substantial headwinds—student debt burdens and sky-high rents.  Despite these challenges, saving and managing debt prudently are essential. Discipline is key to establishing sound financial practices, especially when you are young. Doyle, Nancy: “Finding a Way to Save While Costs Go Up” Daily Herald Business Ledger See link below: Daily Herald Business Ledger

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