How to Understand Personal Finance Basics

How to Understand Personal Finance Basics.

Understanding your personal finances can be very overwhelming, particularly if you’re just starting out. It is tough to know how best to handle your money, how to go about paying off debt, and where and when to invest. By following some basic steps for doing these things, as well as saving for emergencies and retirement and insuring the assets you’ve worked hard to obtain, you can begin to understand your personal finances and become more confident in your ability to make good decisions regarding them.





Learning How to Create a Budget.



Gather your financial statements and information. Creating a budget is one of the most important aspects of personal finance. A solid budget allows you to plan for how you’ll spend the money you bring in each month and illustrates your spending patterns. To begin, gather all the financial information you can, including bank statements, pay stubs, credit card bills, utility bills, investment account statements, and any other information you can think of.

Most people make monthly budgets so your goal is to figure out how much you make in a month and what your monthly expenses are. The more detail you can provide, the better your budget will be.



Record your monthly income. After gathering all of your financial data, separate out your sources of income. Record the amount of income you bring home in a month. Be sure to include any side jobs you have.

If your income varies from month to month, it may be helpful to figure out your average monthly income for the last six months or so.



List your fixed monthly expenses. Next, look over your financial documents and record any fixed expenses you have, or those that are essential and do not change much from month to month.

Fixed expenses can include things like mortgage payments or rent, credit card payments, car payments, and essential utilities like electric, water, and sewage.



List your variable monthly expenses. You also need to record your variable monthly expenses, which are items for which the amount of money you spend each month varies. These expenses are not necessarily essential and are likely where you will make adjustments to your spending in your budget.

Variable expenses can include things like groceries, gasoline, gym memberships, and eating out.



Total your monthly income and expenses. Once you have recorded all of your income and expenses, both fixed and variable, total each category. Ultimately, you want your income to be larger than your expenses. If it is, you can then decide where it is best for you to spend your excess income. If your expenses are more than your income, you will need to make adjustments to your budget to cut your spending or increase your income.



Adjust your variable expenses to hit your goal. If your budget shows you are spending more than you are earning in income, look at your variable expenses to find places you can cut back on spending, since these items are usually non-essential.

For example, if you are eating out four nights a week, you may have to cut this back to two nights a week. This will free up money you can put toward essential expenses like college loans or credit card debt.

In addition, you may be paying unnecessary monthly fees, like overdraft or late fees. If you are spending money on these types of fees, work on making your payments on time and keeping a bit of a cushion in your bank account.

Alternatively, you can work on earning more instead of spending less. Evaluate whether or not you can pick up a few extra hours of work a week, work overtime, or work any side jobs to increase the amount of money you’re bringing in each month.



Review your budget every month. At the end of each month, take some time and review your spending over the past month. Did you stick to your budget? If not, where did you veer off course? Pinpointing where you are exceeding your budget will help you figure out what kind of spending you need to pay attention to most. Reviewing your budget can also be encouraging if you find you are sticking to it. You may find that it’s extremely motivating seeing the amount of money you saved by cutting back the number of days you eat out a week, for example.













Strategizing to Pay Down Debt..



Pay more than the minimum amount due each month. Even following a strict budget doesn’t mean you can totally avoid debt. Large purchases, like cars, school, and houses often require you to take out a significant loan. In addition, it can be easy to rack up credit card debt quickly. One of the personal finance basics you must understand is how to take care of this debt as quickly as possible. The first step to doing this is to pay more than the minimum payment as often as you can.

For example, say the minimum payment on your car loan is $50 a month. Paying even $60 a month toward this loan can help you pay it off sooner and cut down on the amount you pay in finance charges over time. The more you can pay above the minimum, the better.



Transfer credit card balances with high annual percentage rates. If you have a credit card for which you are paying a high annual percentage rate (APR), it might be a good idea to look into transferring this balance to a credit card that offers a lower APR or no APR for a certain amount of time. This way, your entire payment will be applied to your balance, not interest.

Read the fine print before transferring a balance. Most cards charge a transfer fee (3% of the balance, for example) and only offer 0% APR for a limited amount of time (12 or 18 months, for example). Make sure you understand the terms of your new agreement and shop around for the best option before transferring your balance.



Calculate the amount of debt on each credit card. If you have multiple credit cards, compare the amount of debt you have on each one. You can use this information in two different ways:

Some people believe paying off the credit card with the smallest balance first is best. The idea here is that getting the smaller amount of debt paid off will motivate you and allow you to focus on your remaining debt.

Alternatively, some people believe you should focus on paying off the largest balance because you will be paying the most in interest on this balance. To do this, you would try to make more than the minimum payment on this balance, while paying only the minimum on your smaller balance.

If possible, the best solution is to pay more than the minimum simultaneously on each balance.



Dedicate excess funds toward paying off debt. Once you are able to follow your monthly budget, dedicate any extra funds you have at the end of the month toward paying down your debt. It can be tempting to use this money to treat yourself to a fancy dinner or a new TV, but remember your long-term goals before doing this. In the long run, paying down debt will serve you better than treating yourself to something unnecessary.



Consolidate your debt. If you have multiple credit card accounts, student loans, a mortgage, a car loan, or any combination of these debts, consolidating them into one payment may help you manage them more easily. Typically, when you consolidate debt, you’ll get a debt consolidation loan. These loans usually have a lower interest rate and require lower monthly payments.

While consolidating your debt can make it easier to manage, it may also increase the amount you’ll pay in the long run because it extends your payments over a longer period of time.

If your credit score is not good, you may need a co-signer to be able to get a debt consolidation loan.

You can also consolidate your credit card debt by transferring all of your balances to a 0% APR credit card. If you think you can pay off your debt within 12 to 18 months, this might be a good option. However, if you think it will take you significantly longer to pay it off, this might not be a good option because the 0% APR is usually only good for 12 to 18 months.



Refinance your loans. Refinancing is generally a good option if your financial situation has improved since taking out your loan. Similar to consolidating your debt, refinancing your loans also consolidates your debts and may allow you to make lower monthly payments on your loans. Refinancing might also allow you to shorten the term of your loan to pay off your debts more quickly. In addition, depending on your financial situation, you may also be eligible for a lower interest rate.





Choose a student loan repayment plan. If you can afford it, the standard repayment plan is your best option for repaying federal loans. A standard plan requires you to pay the same amount every month over a ten year period. If you can’t afford the payments on a standard plan, however, the government offers two alternative categories of plans—income-driven and basic.

Income-driven repayment plans extend the terms of your loan to 20 or 25 years and require you to pay a certain percentage of your income toward your loan each month, rather than a fixed monthly payment. In addition, any amount still owed at the end of your loan term is forgiven.

Basic plans include standard, graduated, and extended repayment options. Standard is the best option if you can afford it, but graduated or extended plans may be right in some situations. Graduated plans start you off with low payments and gradually increase them over time. This plan can be good if you expect to make more money over the years. Extended plans extend the terms of your loan to 25 years, allowing you to make smaller payments each month, but pay more in interest over time.











Saving for Emergencies and Retirement.



Set up automatic deposits. It can be tough to commit to putting money into your savings account every month, but it is important to do so to ensure you have enough money for emergencies and for your future. If possible, make automatic payments into a saving account each month.

For example, set your bank account so it automatically transfers $50 from your checking account to savings account at least once a month.

Or, if your paycheck gets deposited directly into your account, you can usually set it up so that a certain portion (either a dollar amount or a percentage) is deposited straight into your savings account. Most professionals recommend putting 10 to 20 percent of your income towards savings each month.



Contribute to a retirement savings plan. You should start saving for retirement as soon as possible to ensure you’ll have enough money to live comfortably when you are done working. The amount you need to contribute to this savings account monthly depends on a number of different factors, like when you start saving, how much you are starting with, and whether or not you’re going to receive any kind of employer contribution.

Many employers offer a 401k, or a retirement savings plan, of some kind to their employees. A lot of companies will also match a percentage of the employee’s contributions into this account over time. If your employer offers a plan of this sort, start contributing to it as soon as you can, even if it is just a small amount.

If you are self-employed or your employer does not offer any kind of retirement savings plan, you can set up your own plan through investment websites or many banks.

Consult a financial advisor to figure out how much you should be putting away for retirement to reach your goals.[19]



Build an emergency fund. In addition to saving for retirement, you also need to save for emergencies, like losing a job, costly car repairs, or unexpected medical expenses. You can use your bank’s savings account for this emergency fund.

Financial professionals recommend you have enough in your savings account to cover a month and a half of living expenses for each person you claim as a dependent. For example, if you are married with one child, you should have enough to cover four and a half months of living expenses.











Investing for Beginners.



Invest in a Target Date Fund (TDF). Figuring out where to invest your money is one of the hardest parts of personal finance basics. Essentially, you want to invest in a variety of stocks, bonds, and treasuries—but which ones? Target Date Funds make this a little easier for you. A TDF is basically a hands-off retirement account. You enter the age you want to retire and the TDF will automatically spread the money you put into this account across a wide variety of stocks, bonds, and treasuries.

Some of the recommended companies through which to do this are Vanguard, Fidelity, and T. Rowe Price.



Diversify your investments. If you choose a more hands-on approach to investing, it is important to diversify your portfolio to reduce risk. Diversifying means that you choose a variety of stocks, bonds, and treasuries in which to invest. You should make sure your investments are spread over a number of different companies and industries. This way, if one company or industry suffers a financial downturn, you will only lose a portion of your investment, not the whole thing.



Invest in your 401k. As mentioned above, investing in a 401k provided by your company is a good idea. There are a couple really good things about this option. First of all, most of the time, the money you put into a 401k is deferred on your taxes until you take it out of the account. Some 401ks are taxed before investing, however, so check with your employer to find out which one you have. Second, your employer will often match the amount of money in your 401k (up to a certain amount) so you are, essentially, getting free money just for investing.

You should invest in a company match 401k even if you are in debt. The return you receive on this type of investing is often more than what your debt is.

The amount of money your company will match often depends how much you invest in your 401k. Usually, you have to hit certain investment thresholds, which will then determine the percentage your company will match.



Invest in a Roth IRA. Another investment opportunity offered by many employers is a Roth IRA. In a Roth IRA, you pay taxes up front on your investment. Investing in a Roth IRA is an especially good idea for young people with low incomes, considering the tax rate will likely increase in their lifetime. This type of investment can be very helpful because it will provide you with a pot of money for your retirement that won’t shrink due to taxes.]















Understanding Why to Insure Your Investments.



Get property insurance. You should invest in property insurance to protect your home, which is often one of your biggest assets. Property insurance is actually required if you have a mortgage. This type of insurance will protect you from having to pay out-of-pocket for any major unforeseen home repairs.

If you rent, it is just as important to invest in renter’s insurance. Your belongings can add up to a significant investment and getting renter’s insurance will help protect you in the event of a burglary, fire, flood, or other disaster.



Buy life insurance. Getting life insurance is especially important if you have a family or are married. Life insurance makes sure your income (or at least part of it) is supplemented in the event that you pass away. This is important because your family could face very tough financial situations if they are unable to make up for the portion of income you brought to the table.



Get health insurance. Health insurance premiums can be a small price to pay if you find yourself sick or seriously injured. Medical bills alone can put you in serious debt if you don’t have some sort of insurance policy. In addition, you’ll likely miss a significant amount of work if you are seriously injured, leaving you no way to pay these bills.

Many employers offer health insurance to their employees at a discounted rate. Usually only full-time employees are eligible to receive health insurance through the company, but some companies may offer it to part-time employees as well.

Buying health insurance independently, without the help of an employer, can be expensive. However, it is worth investing in to make sure you are not crippled by debt in the event you become sick or injured.[28]



Buy automobile insurance. Finally, you should invest in automobile insurance. In fact, it is required of anyone who owns a car in the United States. Auto insurance helps cover the cost to repair your car after an accident and medical bills for you and others involved. A major car accident can put you in debt from car repairs and time off work if you’re injured. It is also possible your assets can be seized to help pay for the other driver’s medical bills if the accident is your fault. Having automobile insurance can help diffuse some of these costs and help keep you out of debt.















Working with a Financial Planner.



Start now. One of the most important things you can do for your personal finances is to start thinking about them and working on them early. It may seem like you have plenty of time to save for retirement, but you can actually lose a lot of money in interest if you wait too long. Make financial planning a regular part of your life—like going to the doctor—and get started as soon as possible.

Get your significant other involved. If you are planning a future together, make sure to include your significant other in your planning. Talking to your partner and including them in the process will ensure you are both on the same page with your spending and saving habits and allow you to develop a plan that meets both of your needs.



Be proactive. Some people assume that everything will work out in the long-run and ignore negative cues about their finances. If you do this, however, you could set yourself up for a major loss. Instead, think about how negative financial situations, like severe drops in the stock market, might affect your financial security and plan alternative options.



Plan out the details. Many people see saving for retirement as a race to reach a certain amount of savings before the date they retire. This approach can be misleading, however. Instead, think about the things you’ll need to pay for, like housing, healthcare, eldercare, hobbies, transportation, and so on. Do your best to figure out how much these products and services will cost you and how you’ll finance them.





Tips.

Figuring out how to handle your personal finances can be very confusing whether you’re a beginner or not. It is a good idea to consult a financial planner to help you decide how to best handle your money.

November 13, 2019

how to understand personal finance basics

How to Understand Personal Finance Basics.

Understanding your personal finances can be very overwhelming, particularly if you’re just starting out. It is tough to know how best to handle your money, how to go about paying off debt, and where and when to invest. By following some basic steps for doing these things, as well as saving for emergencies and retirement and insuring the assets you’ve worked hard to obtain, you can begin to understand your personal finances and become more confident in your ability to make good decisions regarding them.





Learning How to Create a Budget.



Gather your financial statements and information. Creating a budget is one of the most important aspects of personal finance. A solid budget allows you to plan for how you’ll spend the money you bring in each month and illustrates your spending patterns. To begin, gather all the financial information you can, including bank statements, pay stubs, credit card bills, utility bills, investment account statements, and any other information you can think of.

Most people make monthly budgets so your goal is to figure out how much you make in a month and what your monthly expenses are. The more detail you can provide, the better your budget will be.



Record your monthly income. After gathering all of your financial data, separate out your sources of income. Record the amount of income you bring home in a month. Be sure to include any side jobs you have.

If your income varies from month to month, it may be helpful to figure out your average monthly income for the last six months or so.



List your fixed monthly expenses. Next, look over your financial documents and record any fixed expenses you have, or those that are essential and do not change much from month to month.

Fixed expenses can include things like mortgage payments or rent, credit card payments, car payments, and essential utilities like electric, water, and sewage.



List your variable monthly expenses. You also need to record your variable monthly expenses, which are items for which the amount of money you spend each month varies. These expenses are not necessarily essential and are likely where you will make adjustments to your spending in your budget.

Variable expenses can include things like groceries, gasoline, gym memberships, and eating out.



Total your monthly income and expenses. Once you have recorded all of your income and expenses, both fixed and variable, total each category. Ultimately, you want your income to be larger than your expenses. If it is, you can then decide where it is best for you to spend your excess income. If your expenses are more than your income, you will need to make adjustments to your budget to cut your spending or increase your income.



Adjust your variable expenses to hit your goal. If your budget shows you are spending more than you are earning in income, look at your variable expenses to find places you can cut back on spending, since these items are usually non-essential.

For example, if you are eating out four nights a week, you may have to cut this back to two nights a week. This will free up money you can put toward essential expenses like college loans or credit card debt.

In addition, you may be paying unnecessary monthly fees, like overdraft or late fees. If you are spending money on these types of fees, work on making your payments on time and keeping a bit of a cushion in your bank account.

Alternatively, you can work on earning more instead of spending less. Evaluate whether or not you can pick up a few extra hours of work a week, work overtime, or work any side jobs to increase the amount of money you’re bringing in each month.



Review your budget every month. At the end of each month, take some time and review your spending over the past month. Did you stick to your budget? If not, where did you veer off course? Pinpointing where you are exceeding your budget will help you figure out what kind of spending you need to pay attention to most. Reviewing your budget can also be encouraging if you find you are sticking to it. You may find that it’s extremely motivating seeing the amount of money you saved by cutting back the number of days you eat out a week, for example.













Strategizing to Pay Down Debt..



Pay more than the minimum amount due each month. Even following a strict budget doesn’t mean you can totally avoid debt. Large purchases, like cars, school, and houses often require you to take out a significant loan. In addition, it can be easy to rack up credit card debt quickly. One of the personal finance basics you must understand is how to take care of this debt as quickly as possible. The first step to doing this is to pay more than the minimum payment as often as you can.

For example, say the minimum payment on your car loan is $50 a month. Paying even $60 a month toward this loan can help you pay it off sooner and cut down on the amount you pay in finance charges over time. The more you can pay above the minimum, the better.



Transfer credit card balances with high annual percentage rates. If you have a credit card for which you are paying a high annual percentage rate (APR), it might be a good idea to look into transferring this balance to a credit card that offers a lower APR or no APR for a certain amount of time. This way, your entire payment will be applied to your balance, not interest.

Read the fine print before transferring a balance. Most cards charge a transfer fee (3% of the balance, for example) and only offer 0% APR for a limited amount of time (12 or 18 months, for example). Make sure you understand the terms of your new agreement and shop around for the best option before transferring your balance.



Calculate the amount of debt on each credit card. If you have multiple credit cards, compare the amount of debt you have on each one. You can use this information in two different ways:

Some people believe paying off the credit card with the smallest balance first is best. The idea here is that getting the smaller amount of debt paid off will motivate you and allow you to focus on your remaining debt.

Alternatively, some people believe you should focus on paying off the largest balance because you will be paying the most in interest on this balance. To do this, you would try to make more than the minimum payment on this balance, while paying only the minimum on your smaller balance.

If possible, the best solution is to pay more than the minimum simultaneously on each balance.



Dedicate excess funds toward paying off debt. Once you are able to follow your monthly budget, dedicate any extra funds you have at the end of the month toward paying down your debt. It can be tempting to use this money to treat yourself to a fancy dinner or a new TV, but remember your long-term goals before doing this. In the long run, paying down debt will serve you better than treating yourself to something unnecessary.



Consolidate your debt. If you have multiple credit card accounts, student loans, a mortgage, a car loan, or any combination of these debts, consolidating them into one payment may help you manage them more easily. Typically, when you consolidate debt, you’ll get a debt consolidation loan. These loans usually have a lower interest rate and require lower monthly payments.

While consolidating your debt can make it easier to manage, it may also increase the amount you’ll pay in the long run because it extends your payments over a longer period of time.

If your credit score is not good, you may need a co-signer to be able to get a debt consolidation loan.

You can also consolidate your credit card debt by transferring all of your balances to a 0% APR credit card. If you think you can pay off your debt within 12 to 18 months, this might be a good option. However, if you think it will take you significantly longer to pay it off, this might not be a good option because the 0% APR is usually only good for 12 to 18 months.



Refinance your loans. Refinancing is generally a good option if your financial situation has improved since taking out your loan. Similar to consolidating your debt, refinancing your loans also consolidates your debts and may allow you to make lower monthly payments on your loans. Refinancing might also allow you to shorten the term of your loan to pay off your debts more quickly. In addition, depending on your financial situation, you may also be eligible for a lower interest rate.





Choose a student loan repayment plan. If you can afford it, the standard repayment plan is your best option for repaying federal loans. A standard plan requires you to pay the same amount every month over a ten year period. If you can’t afford the payments on a standard plan, however, the government offers two alternative categories of plans—income-driven and basic.

Income-driven repayment plans extend the terms of your loan to 20 or 25 years and require you to pay a certain percentage of your income toward your loan each month, rather than a fixed monthly payment. In addition, any amount still owed at the end of your loan term is forgiven.

Basic plans include standard, graduated, and extended repayment options. Standard is the best option if you can afford it, but graduated or extended plans may be right in some situations. Graduated plans start you off with low payments and gradually increase them over time. This plan can be good if you expect to make more money over the years. Extended plans extend the terms of your loan to 25 years, allowing you to make smaller payments each month, but pay more in interest over time.











Saving for Emergencies and Retirement.



Set up automatic deposits. It can be tough to commit to putting money into your savings account every month, but it is important to do so to ensure you have enough money for emergencies and for your future. If possible, make automatic payments into a saving account each month.

For example, set your bank account so it automatically transfers $50 from your checking account to savings account at least once a month.

Or, if your paycheck gets deposited directly into your account, you can usually set it up so that a certain portion (either a dollar amount or a percentage) is deposited straight into your savings account. Most professionals recommend putting 10 to 20 percent of your income towards savings each month.



Contribute to a retirement savings plan. You should start saving for retirement as soon as possible to ensure you’ll have enough money to live comfortably when you are done working. The amount you need to contribute to this savings account monthly depends on a number of different factors, like when you start saving, how much you are starting with, and whether or not you’re going to receive any kind of employer contribution.

Many employers offer a 401k, or a retirement savings plan, of some kind to their employees. A lot of companies will also match a percentage of the employee’s contributions into this account over time. If your employer offers a plan of this sort, start contributing to it as soon as you can, even if it is just a small amount.

If you are self-employed or your employer does not offer any kind of retirement savings plan, you can set up your own plan through investment websites or many banks.

Consult a financial advisor to figure out how much you should be putting away for retirement to reach your goals.[19]



Build an emergency fund. In addition to saving for retirement, you also need to save for emergencies, like losing a job, costly car repairs, or unexpected medical expenses. You can use your bank’s savings account for this emergency fund.

Financial professionals recommend you have enough in your savings account to cover a month and a half of living expenses for each person you claim as a dependent. For example, if you are married with one child, you should have enough to cover four and a half months of living expenses.











Investing for Beginners.



Invest in a Target Date Fund (TDF). Figuring out where to invest your money is one of the hardest parts of personal finance basics. Essentially, you want to invest in a variety of stocks, bonds, and treasuries—but which ones? Target Date Funds make this a little easier for you. A TDF is basically a hands-off retirement account. You enter the age you want to retire and the TDF will automatically spread the money you put into this account across a wide variety of stocks, bonds, and treasuries.

Some of the recommended companies through which to do this are Vanguard, Fidelity, and T. Rowe Price.



Diversify your investments. If you choose a more hands-on approach to investing, it is important to diversify your portfolio to reduce risk. Diversifying means that you choose a variety of stocks, bonds, and treasuries in which to invest. You should make sure your investments are spread over a number of different companies and industries. This way, if one company or industry suffers a financial downturn, you will only lose a portion of your investment, not the whole thing.



Invest in your 401k. As mentioned above, investing in a 401k provided by your company is a good idea. There are a couple really good things about this option. First of all, most of the time, the money you put into a 401k is deferred on your taxes until you take it out of the account. Some 401ks are taxed before investing, however, so check with your employer to find out which one you have. Second, your employer will often match the amount of money in your 401k (up to a certain amount) so you are, essentially, getting free money just for investing.

You should invest in a company match 401k even if you are in debt. The return you receive on this type of investing is often more than what your debt is.

The amount of money your company will match often depends how much you invest in your 401k. Usually, you have to hit certain investment thresholds, which will then determine the percentage your company will match.



Invest in a Roth IRA. Another investment opportunity offered by many employers is a Roth IRA. In a Roth IRA, you pay taxes up front on your investment. Investing in a Roth IRA is an especially good idea for young people with low incomes, considering the tax rate will likely increase in their lifetime. This type of investment can be very helpful because it will provide you with a pot of money for your retirement that won’t shrink due to taxes.]















Understanding Why to Insure Your Investments.



Get property insurance. You should invest in property insurance to protect your home, which is often one of your biggest assets. Property insurance is actually required if you have a mortgage. This type of insurance will protect you from having to pay out-of-pocket for any major unforeseen home repairs.

If you rent, it is just as important to invest in renter’s insurance. Your belongings can add up to a significant investment and getting renter’s insurance will help protect you in the event of a burglary, fire, flood, or other disaster.



Buy life insurance. Getting life insurance is especially important if you have a family or are married. Life insurance makes sure your income (or at least part of it) is supplemented in the event that you pass away. This is important because your family could face very tough financial situations if they are unable to make up for the portion of income you brought to the table.



Get health insurance. Health insurance premiums can be a small price to pay if you find yourself sick or seriously injured. Medical bills alone can put you in serious debt if you don’t have some sort of insurance policy. In addition, you’ll likely miss a significant amount of work if you are seriously injured, leaving you no way to pay these bills.

Many employers offer health insurance to their employees at a discounted rate. Usually only full-time employees are eligible to receive health insurance through the company, but some companies may offer it to part-time employees as well.

Buying health insurance independently, without the help of an employer, can be expensive. However, it is worth investing in to make sure you are not crippled by debt in the event you become sick or injured.[28]



Buy automobile insurance. Finally, you should invest in automobile insurance. In fact, it is required of anyone who owns a car in the United States. Auto insurance helps cover the cost to repair your car after an accident and medical bills for you and others involved. A major car accident can put you in debt from car repairs and time off work if you’re injured. It is also possible your assets can be seized to help pay for the other driver’s medical bills if the accident is your fault. Having automobile insurance can help diffuse some of these costs and help keep you out of debt.















Working with a Financial Planner.



Start now. One of the most important things you can do for your personal finances is to start thinking about them and working on them early. It may seem like you have plenty of time to save for retirement, but you can actually lose a lot of money in interest if you wait too long. Make financial planning a regular part of your life—like going to the doctor—and get started as soon as possible.

Get your significant other involved. If you are planning a future together, make sure to include your significant other in your planning. Talking to your partner and including them in the process will ensure you are both on the same page with your spending and saving habits and allow you to develop a plan that meets both of your needs.



Be proactive. Some people assume that everything will work out in the long-run and ignore negative cues about their finances. If you do this, however, you could set yourself up for a major loss. Instead, think about how negative financial situations, like severe drops in the stock market, might affect your financial security and plan alternative options.



Plan out the details. Many people see saving for retirement as a race to reach a certain amount of savings before the date they retire. This approach can be misleading, however. Instead, think about the things you’ll need to pay for, like housing, healthcare, eldercare, hobbies, transportation, and so on. Do your best to figure out how much these products and services will cost you and how you’ll finance them.





Tips.

Figuring out how to handle your personal finances can be very confusing whether you’re a beginner or not. It is a good idea to consult a financial planner to help you decide how to best handle your money.

November 10, 2019

how to split expenses as a couple

How to Split Expenses As a Couple.

Splitting expenses as a couple is an important aspect of having a stable relationship, especially if you’re living together. There are several ways to split expenses. One way is to split everything right down the middle, so each person pays half. The other way is for each person to pay for what they can afford. The final way is for one person to pay all or most of the expenses. If one of you works little or not at all, that person should make up the difference by contributing energy toward domestic tasks. Finally, ensure you’re covering yourself by keeping separate bank accounts and not cosigning loans with your partner.



Method 1 Choosing the Right Method.

1. Determine what expenses qualify as shared. Sometimes it is easy to identify a shared expense. For instance, heating, water, and electricity are house-wide expenses and you will both, presumably, enjoy their use in approximately equal amounts. But it might be harder to justify sharing other expenses. If you have TV service at your home, for instance, but only one of you watches TV, it makes little sense to split that particular expense.

Talk to your partner about which expenditures they believe should be considered shared and which should be considered individual expenses.

2. Split expenses evenly. By splitting every expense evenly, you and your partner have a form of equality in the relationship. This is probably the most logical way to split expenses for couples who have equal or roughly equal incomes.

There are many ways to split expenses 50/50. You might choose to split each expense as it comes in. Alternately, you might reconcile receipts at the end of each month and pay your partner whatever is “owed.” Talk to your partner about which method works best for you.

You don’t need to split everything perfectly evenly. Creating a spreadsheet to track expenses, or otherwise accounting for every penny spent between you can reduce your relationship to a purely economic exchange that takes the romance out of it. Even if you split household bills, it’s still okay to treat your significant other to dinner or a date when you go out.

For instance, you might take turns paying for dinner. Even if your dinners don’t total the exact same amount each time you go out to eat, over time, you’ll each probably end paying about the same amount. This qualifies as a form of splitting costs evenly.

3. Split your expenses according to income. This expense-splitting technique calls for the person with the higher income paying for a larger share of the household expenses. In other words, equality is achieved through each person in the relationship paying expenses according to their ability.

For example, suppose you earn $3,000 per month and your partner earns $2,000 each month. In this case, you should pay for 60% of the expenses, since your income is 60% of the total household income (the figure you get when you combine the incomes of you and your partner).

Talk carefully with your partner to make sure that there are no hidden issues before going forward with this method. In some cases, your partner may feel as though they are contributing too much or too little if this method is used.

4. Share expenses unevenly. In this method, one person will pay for the majority of household expenses. This is the natural choice to make when one person in the relationship has way more income than the other person. However, if both you and your partner make a lot of money, either of you could choose to take on an expense-splitting arrangement like this.

A fair arrangement doesn’t necessarily need to divide all expenses perfectly. For instance, one of you could take the internet bill while the other takes the power bill. Divide things up according to whichever scheme suits your situation.

5. Be willing to trade time and money. If you work and your partner doesn’t or if your partner works but you do not, there are other ways you can come to a fair arrangement by thinking about the work (as well as the money) it takes to run a household. Domestic work – cleaning, cooking, and doing the laundry – is crucial to keeping a household going. It makes little sense for one person to both complete all these tasks and also provide financial stability for you as a couple.

Think about splitting the total amount of work that each of you do as a couple rather than thinking of splitting expenses along purely financial lines.



Method 2 Splitting Food Expenses.

1. Figure out your food budget. Your food budget is the total you spend on food over a given period. To get an accurate picture of how much you spend on food, track your expenses over a certain period of time. Tracking over a month is a good unit of time, since depending on how much you and your partner eat, you might not spend much on food.

Use a shared spreadsheet in Google Doc or another program to track your expenditures. Your document should indicate each item you bought and how much it cost.

Alternatively, try a low-tech route like writing your grocery and dining-out expenses on a piece of lined paper.

Keep your receipts while tracking your food budget.

2. Analyze the budget. Once you’ve figured out your food budget, evaluate the information with your partner. Are you spending too much, too little, or just the right amount? Look for areas where you can cut expenses.

For instance, instead of spending so much on junk food and snacks, try to find healthy alternatives like fruit or veggies and hummus.

Instead of eating out so much, try eating at home more often. Make cooking together a couple's activity.

Eliminate or reduce your alcohol consumption for more savings.

3. Decide how to split the food expenditures. You can use an income-based method to choose how to split the food expenses, or split the food expenses according to consumption patterns. Whatever method you choose, ensure you and your partner agree on how much money you should be spending on food, and ensure you both set aside money each month for your grocery budget.

Let go of small differences in food consumption. Even if your partner eats more than you, constantly analyzing how much money each person owes for food can put a strain on the relationship.



Method 3 Being Smart About Shared Finances.

1. Plan for emergencies. Both you and your partner should have money saved in the event that one or both of you needs to pay for surgery, a new vehicle, or another large expense. Try to set aside at least 25% of your monthly income for savings.

You should have at least six months’ worth of income saved to cover periods of potential unemployment.

Be sure to set beneficiaries on your retirement and insurance plans, too.

If you separate from your partner, don’t forget to change your beneficiary list.

2. Have regular financial checkups. Every month or two, you and your partner should have a conversation about where you’re both at financially. Are you still both increasing your savings? Do you have enough saved to cover an emergency? Are you both still comfortable with the way expenses are being shared? Talk to your partner about these and other related issues.

Make budgeting and financial planning an activity you do together. This can be more successful or even exciting if you are both working towards a common goal, such as a vacation or purchasing a home.

Always be honest about your finances. If you are struggling financially, you should admit to your partner that you’re having money problems. That way they can help you out by either loaning you money, helping you find another job, or taking other action that can help.

Encourage your partner to be honest with you about their spending habits and their happiness with your current financial arrangement. If your partner lies about money matters, you should seriously consider ending the relationship.

Don’t let your partner push you into a purchase you can’t really afford. For instance, if you can’t afford a new car but your partner really wants you to have one, stand firm and insist that you will not make such a purchase. If they love you, they will respect your decision.

3. Do not move in with your significant other for financial reasons. Living with someone else and sharing expenses does save money, but if you make the decision to shack up based on the potential economic benefit, your relationship will be on an unstable foundation. Only move in together if you’re truly in love with the person and ready to be in close proximity to them night and day. This will make splitting finances just one part of your relationship, and not its entire basis.

4. Avoid borrowing money. Not only is it annoying for your partner, but it might make them suspicious of your financial health and question your intentions. It’s okay to borrow money in an emergency situation, but don’t make a regular habit of it.

If your partner regularly asks to borrow money, you should inquire as to why they constantly need money. They may have lost their job or have unpaid debts you don’t know about.

5. Avoid sharing debts. Cosigning a loan for your partner is never a good idea. The last thing you want to do is end up saddled with debt that you did not personally incur. Only make a large investment with your partner like a house or car if you are in a stable, long-term relationship.

You should ask your partner about any debts or liabilities that they may hold. Be honest about your own debt as well. Keeping these secret can ruin a relationship when the debt is discovered by the other partner.

Always put both your names on the lease, mortgage, or loan. This will allow you some degree of protection in the event you and your partner separate.

For mortgages, consult a real-estate attorney to help you figure out the best way to negotiate your local real estate laws as they relate to your relationship. A married couple has different options for taking out a home loan than an unmarried couple.

For auto loans, too, you (and your partner) should talk to a financial officer at your local bank or credit union. There are many variables that could impact whether you and your partner decide to take out an individual loan or cosign the loan. Seek advice relevant to your living situation in order to get the lowest interest rates and avoid shared debt.

6. Do not share assets. Assets are valuable possessions or investments. Common assets include bank accounts as well as big-ticket items. Typical material assets include houses, cars, and boats. These items should never be purchased using both your names. Otherwise, you might end up wrangling over ownership in the event you separate.

Bank accounts, likewise, should never be shared between you and your partner. These accounts can be a source of tension should one partner decide to use the money for themselves.

If you want to set up a shared account with your partner – for instance, an account either of you can use to pay bills – keep it completely separate from your personal account. Put a small amount of money in it each month along with your partner, and use it only to pay the bills you intended it for.

February 25, 2020

How to Split Expenses As a Couple.

How to Split Expenses As a Couple.

Splitting expenses as a couple is an important aspect of having a stable relationship, especially if you’re living together. There are several ways to split expenses. One way is to split everything right down the middle, so each person pays half. The other way is for each person to pay for what they can afford. The final way is for one person to pay all or most of the expenses. If one of you works little or not at all, that person should make up the difference by contributing energy toward domestic tasks. Finally, ensure you’re covering yourself by keeping separate bank accounts and not cosigning loans with your partner.



Method 1 Choosing the Right Method.

1. Determine what expenses qualify as shared. Sometimes it is easy to identify a shared expense. For instance, heating, water, and electricity are house-wide expenses and you will both, presumably, enjoy their use in approximately equal amounts. But it might be harder to justify sharing other expenses. If you have TV service at your home, for instance, but only one of you watches TV, it makes little sense to split that particular expense.

Talk to your partner about which expenditures they believe should be considered shared and which should be considered individual expenses.

2. Split expenses evenly. By splitting every expense evenly, you and your partner have a form of equality in the relationship. This is probably the most logical way to split expenses for couples who have equal or roughly equal incomes.

There are many ways to split expenses 50/50. You might choose to split each expense as it comes in. Alternately, you might reconcile receipts at the end of each month and pay your partner whatever is “owed.” Talk to your partner about which method works best for you.

You don’t need to split everything perfectly evenly. Creating a spreadsheet to track expenses, or otherwise accounting for every penny spent between you can reduce your relationship to a purely economic exchange that takes the romance out of it. Even if you split household bills, it’s still okay to treat your significant other to dinner or a date when you go out.

For instance, you might take turns paying for dinner. Even if your dinners don’t total the exact same amount each time you go out to eat, over time, you’ll each probably end paying about the same amount. This qualifies as a form of splitting costs evenly.

3. Split your expenses according to income. This expense-splitting technique calls for the person with the higher income paying for a larger share of the household expenses. In other words, equality is achieved through each person in the relationship paying expenses according to their ability.

For example, suppose you earn $3,000 per month and your partner earns $2,000 each month. In this case, you should pay for 60% of the expenses, since your income is 60% of the total household income (the figure you get when you combine the incomes of you and your partner).

Talk carefully with your partner to make sure that there are no hidden issues before going forward with this method. In some cases, your partner may feel as though they are contributing too much or too little if this method is used.

4. Share expenses unevenly. In this method, one person will pay for the majority of household expenses. This is the natural choice to make when one person in the relationship has way more income than the other person. However, if both you and your partner make a lot of money, either of you could choose to take on an expense-splitting arrangement like this.

A fair arrangement doesn’t necessarily need to divide all expenses perfectly. For instance, one of you could take the internet bill while the other takes the power bill. Divide things up according to whichever scheme suits your situation.

5. Be willing to trade time and money. If you work and your partner doesn’t or if your partner works but you do not, there are other ways you can come to a fair arrangement by thinking about the work (as well as the money) it takes to run a household. Domestic work – cleaning, cooking, and doing the laundry – is crucial to keeping a household going. It makes little sense for one person to both complete all these tasks and also provide financial stability for you as a couple.

Think about splitting the total amount of work that each of you do as a couple rather than thinking of splitting expenses along purely financial lines.



Method 2 Splitting Food Expenses.

1. Figure out your food budget. Your food budget is the total you spend on food over a given period. To get an accurate picture of how much you spend on food, track your expenses over a certain period of time. Tracking over a month is a good unit of time, since depending on how much you and your partner eat, you might not spend much on food.

Use a shared spreadsheet in Google Doc or another program to track your expenditures. Your document should indicate each item you bought and how much it cost.

Alternatively, try a low-tech route like writing your grocery and dining-out expenses on a piece of lined paper.

Keep your receipts while tracking your food budget.

2. Analyze the budget. Once you’ve figured out your food budget, evaluate the information with your partner. Are you spending too much, too little, or just the right amount? Look for areas where you can cut expenses.

For instance, instead of spending so much on junk food and snacks, try to find healthy alternatives like fruit or veggies and hummus.

Instead of eating out so much, try eating at home more often. Make cooking together a couple's activity.

Eliminate or reduce your alcohol consumption for more savings.

3. Decide how to split the food expenditures. You can use an income-based method to choose how to split the food expenses, or split the food expenses according to consumption patterns. Whatever method you choose, ensure you and your partner agree on how much money you should be spending on food, and ensure you both set aside money each month for your grocery budget.

Let go of small differences in food consumption. Even if your partner eats more than you, constantly analyzing how much money each person owes for food can put a strain on the relationship.



Method 3 Being Smart About Shared Finances.

1. Plan for emergencies. Both you and your partner should have money saved in the event that one or both of you needs to pay for surgery, a new vehicle, or another large expense. Try to set aside at least 25% of your monthly income for savings.

You should have at least six months’ worth of income saved to cover periods of potential unemployment.

Be sure to set beneficiaries on your retirement and insurance plans, too.

If you separate from your partner, don’t forget to change your beneficiary list.

2. Have regular financial checkups. Every month or two, you and your partner should have a conversation about where you’re both at financially. Are you still both increasing your savings? Do you have enough saved to cover an emergency? Are you both still comfortable with the way expenses are being shared? Talk to your partner about these and other related issues.

Make budgeting and financial planning an activity you do together. This can be more successful or even exciting if you are both working towards a common goal, such as a vacation or purchasing a home.

Always be honest about your finances. If you are struggling financially, you should admit to your partner that you’re having money problems. That way they can help you out by either loaning you money, helping you find another job, or taking other action that can help.

Encourage your partner to be honest with you about their spending habits and their happiness with your current financial arrangement. If your partner lies about money matters, you should seriously consider ending the relationship.

Don’t let your partner push you into a purchase you can’t really afford. For instance, if you can’t afford a new car but your partner really wants you to have one, stand firm and insist that you will not make such a purchase. If they love you, they will respect your decision.

3. Do not move in with your significant other for financial reasons. Living with someone else and sharing expenses does save money, but if you make the decision to shack up based on the potential economic benefit, your relationship will be on an unstable foundation. Only move in together if you’re truly in love with the person and ready to be in close proximity to them night and day. This will make splitting finances just one part of your relationship, and not its entire basis.

4. Avoid borrowing money. Not only is it annoying for your partner, but it might make them suspicious of your financial health and question your intentions. It’s okay to borrow money in an emergency situation, but don’t make a regular habit of it.

If your partner regularly asks to borrow money, you should inquire as to why they constantly need money. They may have lost their job or have unpaid debts you don’t know about.

5. Avoid sharing debts. Cosigning a loan for your partner is never a good idea. The last thing you want to do is end up saddled with debt that you did not personally incur. Only make a large investment with your partner like a house or car if you are in a stable, long-term relationship.

You should ask your partner about any debts or liabilities that they may hold. Be honest about your own debt as well. Keeping these secret can ruin a relationship when the debt is discovered by the other partner.

Always put both your names on the lease, mortgage, or loan. This will allow you some degree of protection in the event you and your partner separate.

For mortgages, consult a real-estate attorney to help you figure out the best way to negotiate your local real estate laws as they relate to your relationship. A married couple has different options for taking out a home loan than an unmarried couple.

For auto loans, too, you (and your partner) should talk to a financial officer at your local bank or credit union. There are many variables that could impact whether you and your partner decide to take out an individual loan or cosign the loan. Seek advice relevant to your living situation in order to get the lowest interest rates and avoid shared debt.

6. Do not share assets. Assets are valuable possessions or investments. Common assets include bank accounts as well as big-ticket items. Typical material assets include houses, cars, and boats. These items should never be purchased using both your names. Otherwise, you might end up wrangling over ownership in the event you separate.

Bank accounts, likewise, should never be shared between you and your partner. These accounts can be a source of tension should one partner decide to use the money for themselves.

If you want to set up a shared account with your partner – for instance, an account either of you can use to pay bills – keep it completely separate from your personal account. Put a small amount of money in it each month along with your partner, and use it only to pay the bills you intended it for.

February 25, 2020

How to Read a Financial Report

How to Read a Financial Report.

Financial reports, also called financial statements, demonstrate a company's financial position over a specific period of time. Most businesses and organizations provide financial reports to their Boards of Directors, shareholders and investors on a monthly, quarterly or annual basis. They are reviewed to identify trends, successes and problems within a company's finances. These reports are often prepared by accountants or financial teams, but they are not complicated to read. Read a financial report by paying attention to the balance sheet, income and cash flow.

Steps.
1. Identify the time period covered by the financial report. Usually, the top of the report or statement lists the time period.
2. Look at the balance sheet. The balance sheet lists the assets and liabilities of the company.
Take a look at how the balance sheet is set up. In some reports the assets will be listed on the right, and the liabilities on the left on other reports the assets will be listed first and on top, and the liabilities below after the assets.
Read the assets. Assets include cash, investments, property and other things owned by the company that have value. The assets are listed in order of liquidity. The most liquid assets, such as cash, are presented first.
Review the liabilities. Liabilities are debts or obligations that the company owes to others. These include rent, payroll, taxes, loan payments and money owed to other vendors or contractors.The liabilities and equity section are combined to produce a balance with the asset component. The equity section gives a break down of the value of money invested and re-invested in the business.
Notice the difference between current liabilities and long term liabilities. Current liabilities are things that need to be paid off within a year. Long term liabilities will take more than a year.
A balance sheet must always balance that is, the sum of assets must be equal to the sum of liabilities and equities. If that is not the case, it is usually the first sign of a badly reported financial Statement.
3. Look at the income statement. This will show you how much money the company earned over the specified period of time. Any money that was spent in earning that income will also be reflected.
Read the top line, which should say "sales" or "gross revenue." This reflects the amount of money the company made by providing its products or services, before any expenses are deducted.
Look at the cost of goods sold. This is the negative figure directly below the revenue/ sales figure. This figure represents the direct expenses incurred by the business in making the revenue/ sales figure.
The Gross profit which is the difference between the sales/revenue figure and the cost of goods sold represents the profit made by the business before operational expenses are deducted. This figure is always a positive number, if it is negative, it means the business is not viable.
Review the operating expenses. These include the costs of doing business, such as salaries, advertising, salaries and miscellaneous expenses.
Notice the depreciation line. This reflects the cost of an asset over the amount of time it can be used by the company.
Check the operating profit, which is the amount of money the company made after the operating expenses are deducted, the operating profit is the Gross profit figure less the total operating expenses figure.
Look at the amount of interest that was earned and paid. These are called Finance costs if interests are paid or Finance income if interests are earned. A business inures finance costs when it has borrowed money at an interest like wise a business earns Finance/ Interest income when it has lent money at an interest or invested in money market securities. .
Check the amount of income tax that was subtracted.
Read the last line of the income statement. This reflects the net profit or loss.
4. Look at the cash flow statement. This will tell you how much cash the company has available. It will also track the money coming in and out of the company during the specified time.
Read about the operating activities first. This section analyzes how the company's cash was used in order to reach its net profit or loss.
Check the investment activities. This part of the cash flow statement shows any income from investments or assets that were sold.
Look at the financing activities. This tracks what the company did to pay back or acquire things such as bank loans.
5. Review any narratives. Accounting professionals will often provide a paragraph that provides an overview of the financial report.
6. Look through supporting documentation if you have questions. There are usually back-up or supporting documents available, such as receipts and invoices, that help explain transactions.

Tips,

Remember that all of your financial reports will be included in audits and tax preparations. Ask your accountants if you have any questions or feel unsure about what you are reading.
Schedule an independent audit at least 1 time per year in order to make sure your financial reports and statements are consistent and accurate.

April 26, 2020

How to Calculate Compound Interest

How to Calculate Compound Interest.

Compound interest is distinct from simple interest in that interest is earned both on the original investment (the principal) and the interest accumulated so far, rather than simply on the principal. Because of this, accounts with compound interest grow faster than those with simple interest. Additionally, the value will grow even faster if the interest is compounded multiple times per year. Compound interest is offered on a variety of investment products and also charged on certain types of loans, like credit card debt. Calculating how much an amount will grow under compound interest is simple with the right equations.

Part 1 Finding Annual Compound Interest.
1. Define annual compounding. The interest rate stated on your investment prospectus or loan agreement is an annual rate. If your car loan, for example, is a 6% loan, you pay 6% interest each year. Compounding once at the end of the year is the easiest calculation for compounding interest.
A debt may compound interest annually, monthly or even daily.
The more frequently your debt compounds, the faster you will accumulate interest.
You can look at compound interest from the investor or the debtor’s point of view. Frequent compounding means that the investor’s interest earnings will increase at a faster rate. It also means that the debtor will owe more interest while the debt is outstanding.
For example, a savings account may be compounded annually, while a pay-day loan can be compounded monthly or even weekly.
2. Calculate interest compounding annually for year one. Assume that you own a $1,000, 6% savings bond issued by the US Treasury. Treasury savings bonds pay out interest each year based on their interest rate and current value.
Interest paid in year 1 would be $60 ($1,000 multiplied by 6% = $60).
To calculate interest for year 2, you need to add the original principal amount to all interest earned to date. In this case, the principal for year 2 would be ($1,000 + $60 = $1,060). The value of the bond is now $1,060 and the interest payment will be calculated from this value.
3. Compute interest compounding for later years. To see the bigger impact of compound interest, compute interest for later years. As you move from year to year, the principal amount continues to grow.
Multiply the year 2 principal amount by the bond’s interest rate. ($1,060 X 6% = $63.60). The interest earned is higher by $3.60 ($63.60 - $60.00). That’s because the principal amount increased from $1,000 to $1,060.
For year 3, the principal amount is ($1,060 + $63.60 = $1,123.60). The interest earned in year 3 is $67.42. That amount is added to the principal balance for the year 4 calculation.
The longer a debt is outstanding, the bigger the impact of compounding interest. Outstanding means that the debt is still owed by the debtor.
Without compounding, the year 2 interest would simply be ($1,000 X 6% = $60). In fact, every year’s interest earned would be $60 if you did earn compound interest. This is known as simple interest.
4. Create an excel document to compute compound interest. It can be handy to visualize compound interest by creating a simple model in excel that shows the growth of your investment. Start by opening a document and labeling the top cell in columns A, B, and C "Year," "Value," and "Interest Earned," respectively.
Enter the years (0-5) in cells A2 to A7.
Enter your principal in cell B2. For example, imagine you are started with $1,000. Input 1000.
In cell B3, type "=B2*1.06" and press enter. This means that your interest is being compounded annually at 6% (0.06). Click on the lower right corner of cell B3 and drag the formula down to cell B7. The numbers will fill in appropriately.
Place a 0 in cell C2. In cell C3, type "=B3-B$2" and press enter. This should give you the difference between the values in cell B3 and B2, which represents the interest earned. Click on the lower right corner of cell C3 and drag the formula down to cell C7. The values will fill themselves in.
Continue this process to replicate the process for as many years as you want to track. You can also easily change values for principal and interest rate by altering the formulas used and cell contents.

Part 2 Calculating Compound Interest on Investments.
1. Learn the compound interest formula. The compound interest formula solves for the future value of the investment after set number of years. The formula itself is as follows: {\displaystyle FV=P(1+{\frac {i}{c}})^{n*c}}FV=P(1+{\frac  {i}{c}})^{{n*c}} The variables within the equation are defined as follows:
"FV" is the future value. This is the result of the calculation.
"P" is your principal.
"i" represents the annual interest rate.
"c" represents the compounding frequency (how many times the interest compounds each year).
"n" represents the number of years being measured.
2. Gather variables the compound interest formula. If interest compounds more often than annually, it is difficult to calculate the formula manually. You can use a compound interest formula for any calculation. To use the formula, you need to gather the following information.
Identify the principal of the investment. This is the original amount of your investment. This could be how much you deposited into the account or the original cost of the bond. For example, imagine your principal in an investment account is $5,000.
Locate the interest rate for the debt. The interest rate should be an annual amount, stated as a percentage of the principal. For example, a 3.45% interest rate on the $5,000 principal value.
In the calculation, the interest rate will have to be input as decimal. Convert it by dividing the interest rate by 100. In this example, this would be 3.45%/100 = 0.0345.
You also need to know how often the debt compounds. Typically, interest compounds annually, monthly or daily. For example, imagine that it compounds monthly. This means your compounding frequency ("c") would be input as 12.
Determine the length of time you want to measure. This could be a goal year for growth, like 5 or 10 years, or this maturity of a bond. The maturity date of a bond is the date that the principal amount of the debt is to be repaid. For the example, we use 2 years, so input 2.
3. Use the formula. Input your variables in the right places. Check again to make sure that you are inputting them correctly. Specifically, make sure that your interest rate is in decimal form and that you have used the right number for "c" (compounding frequency).
The example investment would be input as follows: {\displaystyle FV=\$5000(1+{\frac {0.0345}{12}})^{2*12}}FV=\$5000(1+{\frac  {0.0345}{12}})^{{2*12}}
Compute the exponent portion and the portion of the formula in parenthesis separately. This is a math concept called order of operations. You can learn more about the concept using this link: Apply the Order of Operations.
4. Finish the math computations in the formula. Simplify the problem by solving for the parts of the equation in parenthesis first, beginning with the fraction.
Divide the fraction within parentheses first. The result should be: {\displaystyle FV=\$5000(1+0.00288)^{2*12}}FV=\$5000(1+0.00288)^{{2*12}}
Add the numbers within parentheses. The result should be: {\displaystyle FV=\$5000(1.00288)^{2*12}}FV=\$5000(1.00288)^{{2*12}}
Solve the multiplication within the exponent (the last part above the closing parenthesis). The result should look like this: {\displaystyle FV=\$5000(1.00288)^{24}}FV=\$5000(1.00288)^{{24}}
Raise the number within the parentheses to the power of the exponent. This can be done on a calculator by entering the value in parentheses (1.00288 in the example) first, pressing the {\displaystyle x^{y}}x^{y} button, then entering the exponent (24 in this case) and pressing enter. The result in the example is {\displaystyle FV=\$5000(1.0715)}FV=\$5000(1.0715)
Finally, multiply the principal by the number in parentheses. The result in the example is $5,000*1.0715, or $5,357.50. This is the value of the account at the end of the two years.
5. Subtract the principal from your answer. This will give you the amount of interest earned.
Subtract the principal of $5,000 from the future value of $5357.50 to get $5,375.50-$5,000, or $357.50
You will earn $357.50 in interest over the two years.

Part 3 Calculating Compound Interest With Regular Payments.
1. Learn the formula. Compounding interest accounts can increase even faster if you make regular contributions to them, such as adding a monthly amount to a savings account. The formula is longer than that used to calculate compound interest without regular payments, but follows the same principles. The formula is as follows: {\displaystyle FV=P(1+{\frac {i}{c}})^{n*c}+{\frac {R((1+{\frac {i}{c}})^{n*c}-1)}{\frac {i}{c}}}}FV=P(1+{\frac  {i}{c}})^{{n*c}}+{\frac  {R((1+{\frac  {i}{c}})^{{n*c}}-1)}{{\frac  {i}{c}}}}[7]The variables within the equation are also the same as the previous equation, with one addition.
"P" is the principal.
"i" is the annual interest rate.
"c" is the compounding frequency and represents how many times the interest is compounded each year.
"n" is the number of years.
"R" is the amount of the monthly contribution.
2. Compile the necessary variables. To compute the future value of this type of account, you will need the principal (or present value) of the account, the annual interest rate, the compounding frequency, the number of years being measured, and the amount of your monthly contribution. This information should be in your investment agreement.
Be sure to convert the annual interest rate into a decimal. Do this by dividing the rate by 100. For example, using the above 3.45% interest rate, we would divide 3.45 by 100 to get 0.0345.
For compounding frequency, simply use the number of times per year that the interest compounds. This means annually is 1, monthly is 12, and daily is 365 (don't worry about leap years).
3. Input your variables. Continuing with the example from above, imagine that you decide to also contribute $100 per month to your account. This account, with a principal value of $5,000, compounds monthly and earns 3.45% annual interest. We will measure the growth of the account over two years.
The completed formula using this information is as follows: {\displaystyle FV=\$5,000(1+{\frac {0.0345}{12}})^{2*12}+{\frac {\$100((1+{\frac {0.0345}{12}})^{2*12}-1)}{\frac {0.0345}{12}}}}FV=\$5,000(1+{\frac  {0.0345}{12}})^{{2*12}}+{\frac  {\$100((1+{\frac  {0.0345}{12}})^{{2*12}}-1)}{{\frac  {0.0345}{12}}}}
4. Solve the equation. Again, remember to use the proper order of operations to do so. This means that you start by calculating the values inside of parentheses.
Solve for the fractions with parentheses first. This means dividing "i" by "c" in three places, all for the same result of 0.00288. The equation now looks like this: {\displaystyle FV=\$5,000(1+0.00288)^{2*12}+{\frac {\$100((1+0.00288)^{2*12}-1)}{0.00288}}}FV=\$5,000(1+0.00288)^{{2*12}}+{\frac  {\$100((1+0.00288)^{{2*12}}-1)}{0.00288}}
Solve the addition within the parentheses. This means adding the 1 to the result from the last part. This gives: {\displaystyle FV=\$5,000(1.00288)^{2*12}+{\frac {\$100((1.00288)^{2*12}-1)}{0.00288}}}FV=\$5,000(1.00288)^{{2*12}}+{\frac  {\$100((1.00288)^{{2*12}}-1)}{0.00288}}
Solve the multiplication within the exponents. This means multiplying the two numbers that are smaller and above the closing parentheses. In the example, this is 2*12 for a result of 24. This gives: {\displaystyle FV=\$5,000(1.00288)^{24}+{\frac {\$100((1.00288)^{24}-1)}{0.00288}}}FV=\$5,000(1.00288)^{{24}}+{\frac  {\$100((1.00288)^{{24}}-1)}{0.00288}}
Solve the exponents. This means raising the amount within parentheses to the result of the last step. On a calculator, this is done by entering the value in parentheses (1.00288 in the example), pressing the {\displaystyle x^{y}}x^{y} key, and then entering the exponent value (which is 24 here). This gives: {\displaystyle FV=\$5,000(1.0715)+{\frac {\$100(1.0715-1)}{0.00288}}}FV=\$5,000(1.0715)+{\frac  {\$100(1.0715-1)}{0.00288}}
Subtract. Subtract the one from the result of the last step in the right part of the equation (here 1.0715 minus 1). This gives: {\displaystyle FV=\$5,000(1.0715)+{\frac {\$100(0.0715)}{0.00288}}}FV=\$5,000(1.0715)+{\frac  {\$100(0.0715)}{0.00288}}
Multiply. This means multiplying the principal by the number is the first set of parentheses and the monthly contribution by the same number in parentheses. This gives: {\displaystyle FV=\$5,357.50+{\frac {\$7.15}{0.00288}}}FV=\$5,357.50+{\frac  {\$7.15}{0.00288}}
Divide the fraction. This gives {\displaystyle FV=\$5,357.50+\$2,482.64}FV=\$5,357.50+\$2,482.64
Add. Finally, add the two number to get the future value of the account. This gives $5,357.50 + $2,482.64, or $7,840.14. This is the value of the account after the two years.
5. Subtract the principal and payments. To find the interest earned, you have to subtract the amount of money you put into the account. This means adding the principal, $5,000, to the total value of contributions made, which is 24 contributions (2 years* 12 months/year) times the $100 you put in each month for a total of $2,400. The total is $5,000 plus $2,400, or $7,400. Subtracting $7,400 from the future value of $7,840.14, you get the amount of interest earned, which is $440.14.
6. Extend your calculation. To really see the benefit of compound interest, imagine that you continue adding money monthly to the same account for twenty years instead of two. In this case, your future value would be about $45,000, even though you will have only contributed $29,000, meaning that you will have earned $16,000 in interest.

FAQ.
Question : What does "to the power of" mean?
Answer : "To the power of" refers to a particular numerical exponent. It is a multiplication in which a number appears as a factor that many times. For example, 2 to the power of 1 equals 2. 2 to the power of 2 equals 2x2, or 4, and 2 to the power of 3 is 2 x 2 x 2, or 8.
Question : How do I find the compound interest on a 29,870 loan at 6% interest?
Answer : First take out the amount by the formulae: principle(1+ r/100) to the power n (number of years), then take out the ci by subtracting the principle from the amount.
Question : What do I type on a calculator to find compound interest?
Answer : Compound interest can be calculated in several ways. The most common is to say that A=Pe^(rt) where P is the initial amount, "e" is a constant around 2.71, "r" is the interest rate (i.e. 7% would be entered in as 0.07), "t" is the duration in which the interest is being calculated in years and "A" is the final amount.
Question : How do I know if it's better to owe interest on something or to pay a lump sum at no interest?
Answer : Cost/value analysis. Calculate the total you'll pay under both methods and find the difference. Then compare that difference to the value of buying now (with a loan) versus later (lump sum).
Question : How do I find the future value and the compound interest if £4000 is invested for 5 years at 42% p.a?
Answer : Principal=$4000, n=5, R=42%,0.42. The formula: FV=PV(1+r)r aise power n and substitute the value.
Question : How do I calculate principal in compound interest?
Answer : Principal = fv = p(1 + i/c)ⁿc. Formula for principal in compound interest (1 + R/100), where R = rate.

Tips.

You can also calculate compound interest easily using an online compound interest calculator. The US Government hosts a good one at https://www.investor.gov/tools/calculators/compound-interest-calculator.
A quick rule of thumb to find compound interest is the "rule of 72." Start by dividing 72 by the amount of the interest your are earning, for example 4%. In this case, this would be 72/4, or 18. This result, 18, is roughly the number of years it will take for your investment to double at the current interest rate. Keep in mind that the rule of 72 is just a quick approximation, not an exact result.[8]
You can also use these calculations to perform "what-if" calculations that can tell you how much you will earn with a given interest rate, principal, compounding frequency, or number of years.

April 09, 2020

How to Ask Rich People for Money

How to Ask Rich People for Money.

Fundraising for charity is an important part of any nonprofit group's work. In the U.S. alone, donors gave almost $287 billion in 2011. Many people who work for nonprofits feel uncomfortable asking donors for money, but without their help most nonprofit groups would not be able to carry out their missions. Learning how to effectively and respectfully ask wealthy individuals for money can help you ensure your charity or favorite nonprofit, federally recognized as 501 (c) (3), group prospers and is able to help those in need.

Part 1 Planning Your Donation Request
1. Compile a list of donors. Before you begin asking for money, it's best to have an idea of who you're going to ask for donations. If you're going door-to-door, that may be as simple as deciding which neighborhood(s) to work in. If you're soliciting donations by phone or by mail, though, you'll need a list of prospective donors to contact.
If you can identify past donors on your list of people to call or write to, you may want to prioritize those individuals as "best bets" - these are people who, given their history of donating in the past, will most likely contribute again to your cause.
Try to identify which people on your list are the most financially stable. You can do this by interacting with the individual to get a sense of his or her finances, or if going door-to-door, look at the houses residents live in and the cars in their driveways. People with large, elaborate homes or flashy sports cars most likely have more disposable income. (Though of course this doesn't guarantee that they will give donations.)
You can also look for potential donors by their other areas of spending. For example, does the prospective donor attend fundraisers for other organizations or individuals? If so, that prospective donor probably has the means to donate to your organization, if properly persuaded.
Consider using analytical software and services, such as Donor Search, to identify which potential donors are more wealthy and more likely to donate.
Remember to think "ABC" when identifying donors: Able to make a gift, Belief (known or potential) in your cause, and Contact/Connection with your organization.
2. Get to know your donors. If your organization has dealt with donors in the past, you or a colleague will probably know what strategies work best in making your appeal. Some people want to know how the money from last year was spent, while others may simply want to know how much is needed. Certain donors may have fears or reservations about donating, and it's important to learn to recognize those fears/reservations so you can address them in advance.
Some donors may need to hear particular terms or phrases in order to be persuaded to donate. If you know this to be the case, make some indication of this on your list so that when you call or approach that person, you'll know what to say.
Any time a donor seems reluctant to give but gives anyway, make a note of that situation on your list or in that donor's file (if you have one). Listen to what the individual says when he or she is reluctant, and try to find ways to assuage those fears - not just for this year's fundraiser, but for future years as well.
Be aware that many well-known philanthropists hire other individuals to manage donations and contributions. Because of this, you may not get to speak to the actual donor himself/herself. However, the employees hired by a philanthropist probably have the same concerns that the philanthropist does, and you may have some luck appealing to the philanthropist's interests through his or her employees.
3. Find ways to present your organization. People who have donated to your organization will no doubt be familiar with who you are (as an organization) and what you do. But what about people who have never donated before? How will you describe what you do to an outsider? This is important, as it may determine whether the individual will listen to the rest of your pitch. If possible, try to compile some data on what your organization has done in the past, the problems you hope to address after this fundraising drive, and how that prospective donation would help your cause.
Try to present your organization in a way that both explains what you do while also highlighting the issue you seek to change. For example, you might say something like, "Did you know that [the issue your organization addresses] affects a significant portion of the city, and we are the only organization solely committed to addressing these issues in a comprehensive way?"
It's not a requirement to have data compiled, but for individuals who aren't familiar with your organization, it may be very helpful to know that information.
Consider printing out a brochure or having a reusable chart to illustrate both the improvements you've made and the improvements you hope to make.
Think about what you might say if someone doesn't understand your organization's goals, or what you might say if someone was dismissive of your organization. Try putting yourself in those shoes - imagining that you were someone who didn't want to help the organization - and what you might say to the organization. Then imagine how you might respond to hearing those words.
The better your donor base understands your organization - and the better you understand your donors - the more likely you'll be to build a long-term relationship with that donor.
4. Practice your appeal. One of the best things you can do to strengthen your appeal for donations is to practice what you're going to say. That doesn't just mean knowing how to actually ask for money, but also knowing how to initiate the conversation, practicing scenarios, anticipating potential responses, and knowing how to direct (or re-direct) the conversation.
Remember that the best appeal will educate the potential donor, rather than making a simple sales pitch.
Practice your appeal out loud. Get comfortable with the speech, and learn to adapt it to your own style of speaking. Make it your own speech, and try to make it feel comfortable and unrehearsed (even though this may take a lot of rehearsal).
Practice in front of a mirror if you will be interacting with donors face-to-face.
Try recording yourself, either with a tape recorder or on video, and study your mannerisms and your speech patterns. Does it sound honest? Do your vocal patterns and your physical mannerisms communicate the message of your organization, and the urgency of what you're trying to solve?

Part 2 Asking for Donations.
1. Start a conversation. Don't just call and start running in with your pitch. Work on creating a dialogue with the potential donor, which may mean making some polite small talk at the start. It can be as simple as asking the person how his or her day is going. Anything to start a conversation should help disarm the individual, and make the person realize that you're a caring and concerned member of the community.
If the prospective donor is a known philanthropist, he or she may prefer to have someone who heads the foundation ask for a donation. Statistically, donors are more likely to give money to a recognizable figure affiliated with an organization, rather than to a fundraiser who contacts them on the organization's behalf.
Initiate the conversation by getting the prospective donor to acknowledge an existing problem. If you're raising money for a local organization, you might open the conversation by asking what he or she thinks is the greatest crisis facing your region.
2. Make your intentions known. You shouldn't just introduce yourself by asking for money, but you should make your intentions known near the end of your small talk. Start by asking how the person is doing, or commenting on the weather, and then use that as a lead-in to say, "I'm working with _______, and we're trying to help _______ be able to ________."
If the individual feels like you're just having an aimless conversation and then suddenly he or she is asked for money, it may create tension and cause the person to feel like you're shaking them down. Be calm, friendly, and casual, but don't drag your feet about making it clear that you have a purpose.
3. Let the other person speak. Chances are, if you launch into your usual appeal to a person on the street who's never donated before, that person will walk away. But if you have created a dialogue, and made room for the other person to speak, you may be able to get that individual to feel engaged and a part of the solution.
Try asking a Question : . Say something like, "What do you think is the biggest problem our community faces?" Once the person has answered, instead of simply saying, "Yes, you're right. Will you consider donating?" try a more nuanced approach. After the person says what he or she sees as the problem, just say, "How interesting!" and keep silent while remaining interested.
People fear silence, and the person will probably fill that gap by elaborating on why that issue is important. That potential donor may go on to talk about how a family member has been affected by those issues. This gives you an in to take the specific concern he/she has and run with it. It's no longer an abstract concern, but a specific problem that may have affected the individual personally.
4. Make a specific request. If you leave a donation appeal open-ended, the person may not end up donating, or may only give a few dollars. But if you ask for a specific amount, it takes a lot of guess work out of the equation for that individual, and makes it easier to commit to your request. For example, if the person seems interested, say something like, "Well, we can make a difference. For just _____ dollars, you can help accomplish ___________."
Another way to ask for a specific amount is to put the ball in their court. Ask something like, "Would you consider a gift of _____?" or "Is ______ something you'd be willing to consider to help tackle the problem of __________?"
5. Be persistent. Many people will say no right off the bat, but others may simply need to be persuaded a bit more. Perhaps someone might say that the amount you requested is too high. If that happens, let the person know that any donation amount would be a big help, and ask if there's a slightly lower amount that the person would be willing/able to donate.
Don't be aggressive with your appeal, but do be insistent that your cause is worthy and that any donation amount would help that cause.
6. Thank the person either way. If the individual is willing to donate, then it's cause for celebration. You can thank the person and let him or her know that that donation will go a long way towards solving or addressing the issue at hand. But even if the person is not interested in donating, you should still be polite and appreciative of their time. Simply say, "Well, thank you for your time and have a wonderful day."
Expressing gratitude and courtesy can go a long way. Just because someone isn't interested in donating, that doesn't mean the situation won't change. Perhaps next year the people who said no will have heard or read more about your organization, or perhaps the individual will have been personally affected by the issue you're seeking to address. Making a good impression now, even when turned down, may be what helps you get a donation next year.
7. Follow up with donors. If someone gave a donation, you should absolutely express gratitude. Send the donor a thank-you letter and a gift receipt (in case they want to write it off on their taxes or simply have a record of the donation). It's best to send these items as quickly as possible so that the donor knows that the contribution was greatly appreciated and will be put to good use.

Community Q&A.

Question : How do I ask a rich person for 50,000 dollars?
Answer : Follow the instructions listed in the article above. However, they will likely say no.
Question : How can I get money if I need it urgently?
Answer : Get a job, start a blog, make something, or ask for a small loan.
Question : How can I get help with my power bills and the foreclosure on my house?
Answer : There are probably social services nearby that can help.
Question : How can I raise money for my wedding?
Answer : Ask friends and family members if they are willing to pitch in some money to help fund your marriage. In return, send them invitations.
Question : How can I find money for my daughter's marriage?
Answer : Loans, relatives, friends, or you could try planning a wedding that won't cost you much!
Question : Where can you apply for a small business loan with bad credit?
Answer : You can try becoming a member of a credit union and try for a loan there.
Question : How do I ask for money if I am about to be homeless with an autistic son?
Answer : Ask family and friends, and tell them your situation. Look for government programs that can help, and depending on the age of your son, you may be able to get financial help for him. You can also ask family and friends if the two of you can stay with them while you get back on your feet. That way, you have an address while you look for a job.
Question : I need a loan to deal with a parent's sickness, what can I do?
Answer : Loans are not the only solution to sickness, there are organizations that provide affordable medical care. Search for these in your area. You might also consider launching a donation campaign through Kickstarter or another fundraising website.
Question : How can someone fund me to help me spread the word of God?
Answer : Try doing a simple fundraiser, like a lemonade stand or a car wash.

Tips.

Many people are more motivated to help you with money if they sympathize with your goals or interests. Try to tailor your appeal to each individual donor, based on how that donor seems to respond to the issues you address.
Always send a thank-you note to your donors, regardless of how much they sent you.

July 02, 2020