How to Use ChatGPT for Finance

How to Use ChatGPT for Finance

You’re no stranger to the impressive capabilities of ChatGPT, but have you ever thought about how this powerful AI tool can help you navigate the complex world of finance?

On this page, we’ll explore the endless possibilities of using ChatGPT prompts to simplify financial decision-making, streamline data analysis, and even optimize your investment strategies. Whether you’re a seasoned finance expert or just dipping your toes into the money pool, we’ve got the insights and tips to supercharge your financial prowess with ChatGPT by your side.

This page is part of the How to Use ChatGPT guide. At the bottom of this page, you’ll find links to other use cases.

Personal Finance Management

  • Setting a Monthly Budget

To get help with setting up a monthly budget, try asking for a breakdown of specific categories or expenses related to your personal finance management. Here’s an example:

User prompt: Can you help me create a monthly budget plan for a single person with a salary of $4,000?

AI response: Sure! Here’s a basic monthly budget plan for a single person with a $4,000 salary:

  • Rent/Housing: 30% ($1,200)
  • Utilities: 8% ($320)
  • Groceries: 12% ($480)
  • Savings & Investments: 20% ($800)
  • Transportation: 10% ($400)
  • Health Insurance: 5% ($200)
  • Entertainment & Fun: 7% ($280)
  • Miscellaneous: 8% ($320)

Remember, you can adjust these percentages and allocations depending on your personal needs and priorities.

  • Tracking Expenses

For tracking your expenses, ask for strategies, tools, or methods that can help you stay organized and up-to-date with your finances. This example demonstrates how to ask for an expense tracking method:

User prompt: What’s an effective method to track my daily expenses to manage my personal finance better?

AI response: A popular and effective method to track your daily expenses is to use a mobile app or spreadsheet. Apps like Mint, You Need a Budget (YNAB), or PocketGuard can automatically sync with your bank accounts and categorize transactions to help you manage your personal finances with ease. Alternatively, you can create a spreadsheet with columns for date, expense category, description, and amount to regularly enter and monitor your transactions.

  • Reducing Expenses

To receive suggestions on how to cut costs and save money, ask for specific strategies or ideas applicable to your situation. Check out this example:

User prompt: I spend a lot on eating out and takeaway. Can you suggest ways for me to reduce these costs and save money?

AI response: Of course! Here are some ways to save money on eating out and takeaway:

  1. Cook more meals at home: Try exploring new recipes or meal planning to cook at home more often. This can save you a significant amount of money compared to eating out frequently.
  2. Take advantage of deals and promotions: Look for special offers, weekly discounts, or coupons from your favorite restaurants, and make use of them when you eat out.
  3. Limit eating out to special occasions: Try to eat out only during special occasions or set a strict budget for eating out each month.
  4. Pack your lunch: Prepare your lunch at home and take it to work, helping you save money on both takeaway and restaurant meals.

Start implementing these strategies and monitor your expenses to see the difference in your spending habits.

  • Budgeting and Savings Advice

To get advice on budgeting and saving, you can ask for tips or strategies to improve your personal financial management.

User prompt: “I earn $4,000 a month, and I want to save 20% of my income. What’s the best way to create a budget and allocate my expenses?”

AI response: “To save 20% of your $4,000 monthly income, you’ll need to set aside $800 per month. Here’s a simple way to create a budget:

  • List your fixed expenses (e.g., rent, utilities, insurance, etc.)
  • Allocate funds for variable expenses (e.g., groceries, transportation, entertainment, etc.)
  • Assign the remaining amount to your savings goal of $800 per month.
  • Track your spending and adjust your budget as needed.”
  • Investment Portfolio Recommendations

You can ask for recommendations on creating a diversified investment portfolio based on your risk tolerance and financial goals.

User prompt: “I’m a 30-year-old with a moderate risk tolerance, looking to invest $10,000. How should I diversify my portfolio to achieve long-term growth?”

AI response: Considering your age, risk tolerance, and investment goal, here’s a suggested allocation for your $10,000 portfolio:

  • 60% in diversified stock funds (e.g., index funds or ETFs)
  • 30% in bonds or bond funds
  • 10% in cash or cash equivalents (e.g., a high-yield savings account) This allocation aims to balance risk and reward by investing the majority of your funds in stocks for growth potential and including bonds and cash for stability.
  • Retirement Planning

To get advice on retirement planning, ask about strategies for long-term savings, such as using tax-advantaged accounts or choosing the right investment mix.

User prompt: “I’m 40 years old and want to retire at 65. I can save $500 per month for retirement. Which type of retirement account should I prioritize and how should I invest my contributions?”

AI response: At 40, you have 25 years until retirement. Here’s a suggestion on how to prioritize your retirement savings and investments:

  • Consider contributing to a 401(k) or similar employer-sponsored plan if your employer offers one, especially if there’s a matching contribution.
  • If you don’t have access to a 401(k) or want additional savings, look into opening a Traditional or Roth IRA.
  • For your investment allocation, consider a mix of stock and bond funds. A common rule of thumb is to subtract your age from 110 to determine the percentage of stocks in your portfolio. In your case, this would be 70% stocks and 30% bonds.
  • Revisit your investment mix periodically and adjust as needed as you approach retirement.

Financial Planning and Advisory

  • Calculating Retirement Savings Goal

To get help with calculating your retirement savings goal, provide your current age, desired retirement age, and expected annual expenses during retirement. Here’s an example:

User prompt: I’m 35, and I want to retire at 65. I expect to need $60,000 per year during my retirement. How much should I save to be financially secure in retirement?

AI response: If you want to retire at age 65 and expect to need $60,000 per year during your retirement, you can follow the 25x rule. This means you should aim to have at least 25 times your annual expenses saved. In your case, that would be 25 * $60,000 = $1,500,000. You may also want to consider factors like inflation, investment returns, and potential changes in your lifestyle when setting your retirement savings goal.

  • Retirement Investment Strategies

To receive suggestions on retirement investment strategies, provide information on your risk tolerance and investment preferences. This example demonstrates how to ask for investment strategy advice:

User prompt: I’m a moderate risk-taker and want to save for my retirement. What investment strategies should I consider to help my savings grow?

AI response: As a moderate risk-taker, you might want to consider a balanced approach to investing for retirement. Some potential strategies include:

  1. Diversifying your investments: Spread your investments across various asset classes (stocks, bonds, real estate, etc.) to reduce risk and increase the chances of higher returns.
  2. Consider low-cost index funds: Look into investing in low-cost index funds, which provide broad market exposure and have lower fees than actively managed funds.
  3. Dollar-cost averaging: Invest a consistent amount of money at regular intervals (e.g., monthly) to reduce the impact of market fluctuations on your investment.
  4. Rebalance your portfolio: Regularly review and adjust your investments to maintain your desired risk level and asset allocation.

Tailor these strategies to suit your specific financial goals and risk tolerance.

  • Maximizing Retirement Savings

To receive advice on maximizing your retirement savings, ask for ways to increase your contributions or take advantage of tax-advantaged accounts. This example demonstrates how to request such advice:

User prompt: How can I maximize my retirement savings and take advantage of available tax benefits?

AI response: Here are some ways to maximize your retirement savings while taking advantage of tax benefits:

  1. Contribute to an employer-sponsored retirement plan (e.g., 401(k) or 403(b)): If your employer offers a retirement savings plan, contribute as much as you can and take advantage of any available employer matching.
  2. Contribute to an Individual Retirement Account (IRA): Consider opening and contributing to a Traditional or Roth IRA, which can offer tax advantages depending on your income and financial goals.
  3. Increase your contributions: Each year, try to increase your retirement savings contributions, even if it’s just by a small amount. This can have a significant impact over time.
  4. Catch-up contributions: If you’re 50 years old or older, take advantage of catch-up contributions, which allow you to contribute additional amounts to your retirement accounts.

Combine these strategies to optimize your retirement savings and take advantage of tax-advantaged accounts.

  • Maximizing Tax Deductions

To get advice on maximizing tax deductions, you can ask for information on the most common deductions and tips on how to claim them.

User prompt: “I am a self-employed graphic designer earning $60,000 annually. What are the most common tax deductions I should consider to lower my taxable income?”

AI response: “As a self-employed graphic designer, there are several deductions you can consider to lower your taxable income:

  • Home office deduction: If you have a dedicated workspace in your home, you may be eligible to claim a portion of your housing expenses.
  • Business expenses: Expenses directly related to your work, such as software subscriptions, equipment, and advertising costs, can be deducted.
  • Vehicle expenses: If you use your vehicle for work purposes, you can claim a deduction for business-related mileage or a portion of your vehicle expenses.
  • Retirement contributions: Contributions to a SEP-IRA or Solo 401(k) can reduce your taxable income.
  • Health insurance premiums: If you’re paying for your health insurance, you may be able to deduct the premiums.”
  • Understanding Tax Credits

To learn about tax credits that you may be eligible for, ask for an overview of credits relevant to your specific situation.

User prompt: “I am a single parent with two children, earning $45,000 per year. What tax credits should I be aware of to reduce my tax liability?”

AI response: “As a single parent with two children and a $45,000 annual income, you may be eligible for the following tax credits:

  • Child Tax Credit: For each qualifying child under 17, you may be eligible for a credit of up to $3,000.
  • Earned Income Tax Credit (EITC): This credit is designed for low- to moderate-income workers and can provide significant tax relief depending on your income and number of qualifying children.
  • Child and Dependent Care Credit: If you pay for child care expenses to allow you to work or look for work, you may be eligible for a credit of up to 35% of qualifying expenses.”
  • Tax-Advantaged Investment Strategies

For advice on tax-efficient investing, ask for strategies to minimize the tax impact on your investment portfolio.

User prompt: “I have a taxable investment account with $50,000 in assets. How can I optimize my portfolio for tax efficiency?”

AI response: “To optimize your $50,000 taxable investment account for tax efficiency, consider the following strategies:

  • Invest in tax-efficient funds: Low-turnover funds, such as index funds or ETFs, can help minimize capital gains distributions.
  • Use tax-loss harvesting: Sell underperforming investments to offset gains from other investments, reducing your taxable income.
  • Hold investments for the long term: Investments held for more than a year are subject to lower long-term capital gains tax rates.
  • Consider municipal bonds: Interest income from municipal bonds is generally exempt from federal income taxes and may be exempt from state and local taxes, making them a tax-efficient choice for fixed income investments.”

Investment Analysis and Research

  • Understanding Financial Ratios

Get help with understanding financial ratios and their importance in fundamental analysis by asking for explanations and calculations related to specific ratios. Here’s an example:

User prompt: Please explain the Price-to-Earnings (P/E) ratio and how to calculate it for a company with a market capitalization of $1 billion and an annual net income of $50 million.

AI response: The Price-to-Earnings (P/E) ratio measures the price investors are willing to pay for each dollar of earnings generated by a company. It’s calculated by dividing the market capitalization by the company’s net income. In the example provided, the P/E ratio would be:

Market capitalization: $1 billion
Net income: $50 million

P/E ratio = $1,000,000,000 / $50,000,000 = 20

The P/E ratio of the company is 20, which means investors are willing to pay $20 for each dollar of earnings.

  • Evaluating a Company’s Financial Health

Request help with assessing a company’s financial health by providing its financial data and asking for opinions or guidance. Here’s an example:

User prompt: I’m analyzing XYZ Corp. Their last fiscal year revenue was $500 million, with a net income of $35 million, total assets of $1 billion, and total liabilities of $600 million. What’s your take on their financial health?

AI response: From the information provided, we can assess XYZ Corp’s financial health by analyzing some key financial indicators:

  1. Profit margin: Net income ($35 million) divided by Revenue ($500 million) = 0.07 or 7%. This indicates how much profit the company generates from its revenue.
  2. Asset-to-liability ratio: Total assets ($1 billion) divided by Total liabilities ($600 million) = 1.67. This ratio shows the company’s ability to cover its liabilities using its assets.

Considering these two ratios, XYZ Corp has a profit margin of 7%, which shows the company is generating income from its operations. The asset-to-liability ratio of 1.67 suggests the company has more assets than liabilities, which can be considered a positive sign. However, it’s essential to compare these numbers with industry benchmarks and competitors to get a clearer picture of its financial health.

  • Comparing a Company with its Competitors

Ask for help in comparing a company with its competitors by providing relevant financial data for each company. This example demonstrates how to request such a comparison:

User prompt: I am evaluating Company A and Company B in the same industry. Company A has a P/E ratio of 15, a debt-to-equity ratio of 0.6, and an operating margin of 10%. Company B has a P/E ratio of 20, a debt-to-equity ratio of 0.9, and an operating margin of 14%. Can you help me compare these companies based on these financial ratios?

AI response: Sure, here’s a comparison of the two companies based on the provided financial ratios:

  1. Price-to-Earnings (P/E) ratio: Company A has a lower P/E ratio (15) compared to Company B (20). This suggests that investors are paying less for each dollar of earnings in Company A than Company B, meaning Company A might be relatively undervalued.
  2. Debt-to-Equity ratio: Company A has a lower debt-to-equity ratio (0.6) compared to Company B (0.9), indicating that Company A uses less debt to finance its operations and is thus comparatively less risky.
  3. Operating margin: Company B has a higher operating margin (14%) than Company A (10%), suggesting that Company B is more efficient at converting sales into operating profit.

Both companies have their own advantages and disadvantages. Company A seems less risky, with a lower P/E ratio and debt-to-equity ratio, while Company B has a higher operating margin, which could indicate better operational efficiency. Other factors, such as growth potential, management competence, and market conditions, should also be considered to make an informed decision.

  • Understanding Technical Indicators

To learn about specific technical indicators and their interpretation, you can ask for explanations and guidance on how to use them in your analysis.

User prompt: “I am new to technical analysis and want to understand the Moving Average Convergence Divergence (MACD) indicator. How do I interpret it and use it in my trading decisions?”

AI response: “The Moving Average Convergence Divergence (MACD) is a popular momentum indicator that tracks the relationship between two moving averages of a security’s price, typically the 12-day and 26-day Exponential Moving Averages (EMAs). Here’s how to interpret it:

  • When the MACD line (the difference between the 12-day and 26-day EMAs) crosses above the signal line (a 9-day EMA of the MACD line), it’s considered a bullish signal, suggesting a potential buying opportunity.
  • Conversely, when the MACD line crosses below the signal line, it’s considered a bearish signal, indicating a possible selling opportunity.
  • Divergence between the MACD line and the price can signal a trend reversal. If the price is making higher highs while the MACD line is making lower highs, it’s a bearish divergence. If the price is making lower lows and the MACD line is making higher lows, it’s a bullish divergence.”
  • Analyzing Chart Patterns

You can ask for help identifying and interpreting specific chart patterns to make more informed trading decisions.

User prompt: “I noticed a head and shoulders pattern forming on the chart of XYZ stock. Can you explain this pattern and what it might mean for the stock’s future price movement?”

AI response: “The head and shoulders pattern is a bearish reversal pattern that typically forms after an uptrend. It consists of three peaks: a higher peak (head) between two lower peaks (shoulders). Here’s how to interpret this pattern:

  • The pattern is confirmed when the neckline, drawn by connecting the lows between the head and the shoulders, is broken on the downside.
  • Once the neckline is broken, the pattern suggests that the stock may experience a downward price movement, signaling a potential selling opportunity.
  • To estimate the target price after the pattern is completed, measure the vertical distance from the head’s peak to the neckline and subtract that distance from the point where the neckline is broken.”
  • Evaluating Support and Resistance Levels

Ask for guidance on identifying and interpreting support and resistance levels to better understand potential entry and exit points for trades.

User prompt: “I am looking at the chart for ABC stock and want to identify key support and resistance levels. Can you guide me on how to find these levels and use them in my trading decisions?”

AI response: “Support and resistance levels are price points at which a stock’s price has historically had difficulty moving beyond. Here’s how to identify and use them:

  • Support levels are price points where buying pressure has historically been strong enough to prevent further price declines. Look for points on the chart where the stock’s price has reversed direction after reaching a low.
  • Resistance levels are price points where selling pressure has historically been strong enough to prevent further price increases. Identify points on the chart where the stock’s price has reversed direction after reaching a high.
  • When analyzing support and resistance levels, consider using horizontal lines or trendlines to visualize these price barriers.
  • In your trading decisions, consider buying near support levels and selling near resistance levels. However, if the stock price breaks through a support or resistance level, it might indicate a change in the trend, and you should adjust your strategy accordingly.”

Risk Management and Assessment

  • Analyzing Company Creditworthiness

Get help assessing a company’s creditworthiness by asking for advice based on specific financial ratios, debt levels, and other relevant data. Here’s an example:

User prompt: I’m reviewing the credit risk of Company X, which has a debt-to-equity ratio of 1.2, an interest coverage ratio of 4.0, and a current ratio of 1.8. Can you evaluate their credit risk based on these financial ratios?

AI response: Based on the provided financial ratios, we can get a snapshot of Company X’s credit risk:

  1. Debt-to-equity ratio: 1.2 indicates that the company has a higher level of debt compared to equity, which might suggest a higher credit risk. However, this ratio should be compared with industry benchmarks or competitors to contextualize the result.
  2. Interest coverage ratio: 4.0 suggests that Company X can cover its interest payments four times over using its operating income. This implies a lower credit risk, as the company seems capable of meeting its interest payment obligations.
  3. Current ratio: 1.8 means the company can cover its short-term liabilities 1.8 times using its short-term assets. This is a positive sign, implying a lower credit risk concerning liquidity.

These ratios paint a mixed picture of Company X’s credit risk, with the debt-to-equity ratio indicating higher risk and the other two ratios suggesting lower risk.

  • Assessing the Impact of Economic Factors on Credit Risk

Request help in examining the impact of macroeconomic factors on the credit risk of a particular company or sector. This example demonstrates how to request guidance on such an analysis:

User prompt: How do rising interest rates influence the credit risk of companies in the real estate industry?

AI response: Rising interest rates can have several effects on the credit risk of companies in the real estate industry:

  1. Increase in borrowing costs: Higher interest rates make loans more expensive, leading to higher debt servicing costs for these companies. This can strain their cash flows and increase their credit risk.
  2. Reduced demand for real estate: When interest rates rise, mortgage rates typically follow, which can deter potential homebuyers and decrease real estate demand. This can lead to reduced revenues for real estate companies, which may negatively impact their ability to repay debt, increasing their credit risk.
  3. Market and refinancing risk: Companies with variable-rate or maturing debt face higher refinancing costs when interest rates increase. This can put pressure on their balance sheets and cash flows, resulting in higher credit risk.
  • Evaluating Sector-Specific Risks for Credit Assessment

Ask for help with understanding sector-specific credit risks by requesting guidance related to a particular industry. This example shows how to ask for insights about the energy sector:

User prompt: Can you explain some of the key risks that need to be considered when assessing credit risk for companies in the energy sector?

AI response: Sure, here are some key risks to consider when assessing credit risk for companies in the energy sector:

  1. Commodity price fluctuations: Energy companies are highly susceptible to fluctuations in prices of commodities like oil and natural gas. Volatility in these prices can affect their revenues and profit margins, impacting their credit risk.
  2. Regulatory risk: The energy sector often faces stringent regulations, and policy changes can have significant repercussions on their operations and financial performance. This can indirectly influence their credit risk profile.
  3. Environmental factors: Energy companies may face risks associated with climate change, natural disasters, or accidents, which can directly or indirectly impact their financial health and credit risk. Additionally, increasing pressure to shift towards renewable energy sources might disrupt traditional energy companies’ operations, influencing credit risk.

By considering these sector-specific risks, you can get a better understanding of the credit risk profile for energy sector companies.

  • Evaluating Market Risk Factors

To gain insight into specific market risk factors that can impact your investments, you can ask for an overview and analysis of key risks relevant to your portfolio.

User prompt: “I have a diverse stock portfolio, and I’m concerned about potential market risks that could impact my investments. Can you provide an overview of major market risks and how they might affect my portfolio?”

AI response: “Market risk refers to the potential for investment losses due to factors that affect the overall performance of financial markets. Some major market risks that could impact your diverse stock portfolio include:

  • Economic risk: Changes in economic indicators (e.g., GDP growth, inflation, and interest rates) can affect the performance of individual stocks and the broader market.
  • Geopolitical risk: Political events, such as elections, conflicts, or trade disputes, can create market uncertainty and impact asset prices.
  • Regulatory risk: Changes in laws or regulations, particularly in sectors like finance, energy, or healthcare, can influence company performance and stock prices.
  • Market sentiment: Shifts in investor sentiment can lead to market fluctuations, potentially affecting the value of your investments. To manage these risks, consider maintaining a well-diversified portfolio, periodically reviewing your holdings, and staying informed about market developments.”
  • Assessing Portfolio Risk

You can ask for guidance on assessing the risk level of your investment portfolio and receive suggestions on how to mitigate potential risks.

User prompt: “My portfolio consists of 60% stocks, 30% bonds, and 10% cash. Can you help me assess the overall risk level of my portfolio and suggest ways to reduce risk?”

AI response: “Your current allocation of 60% stocks, 30% bonds, and 10% cash suggests a moderate risk level. Here are some ways to assess and potentially reduce risk in your portfolio:

  • Revisit your risk tolerance and investment objectives to ensure your portfolio’s allocation aligns with your goals and comfort level.
  • Analyze the individual assets in your portfolio to identify any overconcentration in specific sectors or companies.
  • Consider diversifying your stock holdings across various sectors and market capitalizations to reduce the impact of sector-specific risks.
  • To further reduce risk, you might consider increasing the allocation of bonds or other fixed-income investments, which typically provide more stability than stocks. Remember to periodically review and adjust your portfolio to maintain your desired risk level and stay on track to meet your financial objectives.”
  • Measuring Portfolio Volatility

To understand the volatility of your investment portfolio, you can ask for help in measuring and interpreting key metrics like standard deviation or beta.

User prompt: “I want to measure the volatility of my stock portfolio. Can you explain how to calculate and interpret the standard deviation and beta of my investments?”

AI response: “Standard deviation and beta are commonly used metrics to measure the volatility of a stock portfolio. Here’s how to calculate and interpret them:

  • Standard deviation: This measures the dispersion of your portfolio’s returns compared to its average return. A higher standard deviation indicates greater volatility. To calculate it, first find the average return of your portfolio, then calculate the squared deviations from the average, and finally, take the square root of the average of those squared deviations.
  • Beta: This measures the sensitivity of your portfolio’s returns to market movements. A beta of 1 indicates that your portfolio moves in line with the market, while a beta greater than 1 suggests higher volatility and a beta less than 1 indicates lower volatility. To calculate beta, you’ll need historical return data for your portfolio and a market index (e.g., S&P 500). Then,

Financial Reporting and Forecasting

  • Generating a Balance Sheet

To generate a balance sheet, just input relevant financial data along with any necessary calculations or assumptions. For example:

User prompt: Using the following information, create a balance sheet:
Current Assets: $1,000,000
Non-Current Assets: $3,000,000
Current Liabilities: $500,000
Long-term Liabilities: $2,000,000

AI response:

Balance Sheet as of 4/23/2023:

Current Assets: $1,000,000
Non-Current Assets: $3,000,000
Total Assets: $4,000,000

Current Liabilities: $500,000
Long-term Liabilities: $2,000,000
Total Liabilities: $2,500,000

Owner’s Equity: $1,500,000
Total Equity: $1,500,000

Total Liabilities and Equity: $4,000,000

  • Projecting an Income Statement

To project an income statement, provide relevant financial data and any assumptions needed for generating the statement. For example:

User prompt: Prepare a projected income statement for the next year using the following data:
Revenue: $4,500,000
Cost of Goods Sold: $2,500,000
Operating Expenses: $1,200,000
Income Tax Rate: 25%

AI response: Projected Income Statement for the Next Year:

Revenue: $4,500,000
Cost of Goods Sold: -$2,500,000
Gross Profit: $2,000,000
Operating Expenses: -$1,200,000
Operating Income: $800,000
Income Tax Expense (25%): -$200,000
Net Income: $600,000

  • Generating a Cash Flow Statement

For generating cash flow statements, provide relevant financial data and any assumptions or calculations required. For example:

User prompt: Generate a cash flow statement using the following data:
Net Income: $600,000
Depreciation Expense: $100,000
Increase in Accounts Receivable: -$50,000
Increase in Accounts Payable: $30,000
Capital Expenditures: -$200,000
Proceeds from Loan: $300,000
Dividends Paid: -$100,000

AI response:

Cash Flow Statement:

Operating Activities:
Net Income: $600,000
Depreciation Expense: $100,000
Changes in Working Capital:
Increase in Accounts Receivable: -$50,000
Increase in Accounts Payable: $30,000
Net Cash Provided by Operating Activities: $680,000

Investing Activities:
Capital Expenditures: -$200,000
Net Cash Used in Investing Activities: -$200,000

Financing Activities:
Proceeds from Loan: $300,000
Dividends Paid: -$100,000
Net Cash Provided by Financing Activities: $200,000

Net Increase in Cash: $680,000

  • Gathering historical data for revenue and expense projections

User prompt: Provide me with the formula to calculate the average annual growth rate of revenue for the past five years, given the following revenue data: Year 1 – $100,000, Year 2 – $110,000, Year 3 – $121,000, Year 4 – $133,100, and Year 5 – $146,410.

AI response: To calculate the average annual growth rate of revenue for the past five years, use the following formula: [(Final Value / Initial Value)^(1 / Number of Years)] – 1. With the given data, the calculation would be: [(146,410 / 100,000)^(1/5)] – 1 ≈ 0.079 or 7.9%.

  • Estimating future revenues and expenses based on trends and patterns

User prompt: Based on a 7.9% average annual growth rate for revenue, what are the projected revenues for the next three years? Additionally, if the current expense ratio is 65%, what would be the projected expenses for the next three years?

AI response: To project revenues for the next three years, apply the 7.9% growth rate to the latest revenue figure. For Year 6: 146,410 * (1 + 0.079) ≈ $157,995. For Year 7: 157,995 * (1 + 0.079) ≈ $170,558. For Year 8: 170,558 * (1 + 0.079) ≈ $183,962. To calculate projected expenses, multiply the projected revenues by the 65% expense ratio: Year 6 expenses: 157,995 * 0.65 ≈ $102,697. Year 7 expenses: 170,558 * 0.65 ≈ $110,863. Year 8 expenses: 183,962 * 0.65 ≈ $119,575.

  • Adjusting projections based on external factors and industry changes

User prompt: Assuming a new regulation will lead to a 3% decrease in revenue for the next two years and a 1% decrease in expenses, provide revised projections for Year 6 and Year 7 revenues and expenses.

AI response: To adjust the projections, reduce the revenue by 3% and expenses by 1% for Year 6 and Year 7. Year 6 adjusted revenue: 157,995 * (1 – 0.03) ≈ $153,265. Year 6 adjusted expenses: 102,697 * (1 – 0.01) ≈ $101,670. Year 7 adjusted revenue: 170,558 * (1 – 0.03) ≈ $165,241. Year 7 adjusted expenses: 110,863 * (1 – 0.01) ≈ $109,755.

Credit and Lending Decision Support

  • Evaluating Creditworthiness

To evaluate the creditworthiness of an applicant, provide the necessary financial data and personal details. For example:

User prompt: Assess the creditworthiness of the following applicant:
Credit Score: 750
Annual Income: $75,000
Current Debt: $20,000
Length of Employment: 5 years
Loan Amount Requested: $25,000

AI response:

Creditworthiness Assessment:

Credit Score: 750 (Good)
Annual Income: $75,000
Current Debt: $20,000
Debt-to-Income Ratio: 26.7%
Length of Employment: 5 years (Stable)
Loan Amount Requested: $25,000

The applicant has a good credit score, stable employment, and a moderate debt-to-income ratio. Based on this information, the applicant can be considered creditworthy and a low risk for lending.

  • Calculating Loan Terms

To calculate the terms of a loan for the applicant, provide the necessary loan information and any assumptions or parameters. For example:

User prompt: Calculate the monthly payment and total interest for a $25,000 loan at an interest rate of 5% over 5 years.

AI response:

Loan Terms:

Loan Amount: $25,000
Interest Rate: 5%
Loan Duration: 5 years

Calculated Results:
Monthly Payment: $471.78
Total Interest: $3,306.76

  • Evaluating Multiple Applicants for a Lending Decision

To evaluate multiple applicants for a lending decision, provide the relevant financial data and personal details for each applicant. For example:

User prompt: Compare the following two applicants and recommend which one to approve for a loan:
Applicant 1:
Credit Score: 680
Annual Income: $65,000
Current Debt: $15,000
Length of Employment: 3 years
Applicant 2:
Credit Score: 720
Annual Income: $60,000
Current Debt: $10,000
Length of Employment: 4 years
Loan Amount Requested: $20,000

AI response:

Applicant Comparison:

Applicant 1:
Credit Score: 680
Annual Income: $65,000
Current Debt: $15,000
Debt-to-Income Ratio: 23.1%
Length of Employment: 3 years

Applicant 2:
Credit Score: 720
Annual Income: $60,000
Current Debt: $10,000
Debt-to-Income Ratio: 16.7%
Length of Employment: 4 years

While Applicant 1 has a slightly higher annual income, Applicant 2 has a better credit score, lower debt-to-income ratio, and a longer employment history. Based on this comparison, it is recommended to approve Applicant 2 for the loan as they present a lower risk for lending.

  • Analyzing Loan Portfolio Risk

To analyze loan portfolio risk, provide relevant information like loan amounts, interest rates, terms, and other important loan characteristics. For example:

User prompt: Analyze the following loan portfolio for risk:
Loan 1: $50,000 at 4% for 5 years, borrower’s credit score: 700
Loan 2: $30,000 at 5% for 3 years, borrower’s credit score: 680
Loan 3: $20,000 at 6% for 2 years, borrower’s credit score: 750

AI response:

Loan Portfolio Risk Analysis:

Loan 1:
Amount: $50,000
Interest Rate: 4%
Term: 5 years
Borrower’s Credit Score: 700 (Good)
Risk Level: Low

Loan 2:
Amount: $30,000
Interest Rate: 5%
Term: 3 years
Borrower’s Credit Score: 680 (Fair)
Risk Level: Moderate

Loan 3:
Amount: $20,000
Interest Rate: 6%
Term: 2 years
Borrower’s Credit Score: 750 (Excellent)
Risk Level: Low

Overall Portfolio Risk:
The loan portfolio contains a mix of low to moderate risk loans. The majority of the risk is concentrated in Loan 2 due to the borrower’s fair credit score. The other loans in the portfolio have lower risk profiles due to the borrowers’ good and excellent credit scores.

  • Identifying Concentration Risk

To identify concentration risk in your loan portfolio, provide details about the loans and any relevant concentration factors such as industry, region, or borrower type. For example:

User prompt: Identify concentration risk in the following loan portfolio:
Loan 1: $100,000 to a restaurant
Loan 2: $75,000 to a retail store
Loan 3: $50,000 to a technology firm
Loan 4: $25,000 to another technology firm

AI response:

Concentration Risk Analysis:

Loan Distribution:
– Restaurant: 1 loan ($100,000)
– Retail Store: 1 loan ($75,000)
– Technology Firms: 2 loans ($75,000)

Concentration Risk:
The portfolio shows some concentration risk in the technology industry, as two loans totaling $75,000 are allocated to technology firms. It is recommended to diversify the loan portfolio by extending loans to other industries to mitigate the concentration risk.

  • Evaluating Loan Portfolio Performance

To evaluate the performance of your loan portfolio, provide information about loan repayments, interest income, and any other relevant data. For example:

User prompt: Evaluate the performance of the following loan portfolio over the past year:
Loan 1: $50,000 at 5%, timely repayments
Loan 2: $40,000 at 6%, two late repayments, and one missed repayment
Loan 3: $20,000 at 4%, timely repayments

AI response:

Loan Portfolio Performance Evaluation:

Loan 1:
Amount: $50,000
Interest Rate: 5%
Repayment Status: Timely repayments
Performance: Good

Loan 2:
Amount: $40,000
Interest Rate: 6%
Repayment Status: Two late repayments and one missed repayment
Performance: Poor

Loan 3:
Amount: $20,000
Interest Rate: 4%
Repayment Status: Timely repayments
Performance: Good

Overall Portfolio Performance:
The loan portfolio has a mixed performance. Loans 1 and 3 show healthy repayment histories, while Loan 2 has a poor repayment record. It may be necessary to closely monitor Loan 2 and assess the borrower’s financial situation for appropriate follow-up action.

🙌 Responsible use of AI & ChatGPT

To fully capitalize on this cutting-edge technology, it’s important to keep ethical considerations and limitations in mind.

  1. Navigating Ethical Considerations: When using ChatGPT to assist with any topic, bear in mind the ethical aspects involved. Take the advice it offers with a pinch of salt and always verify suggestions before putting them into practice.
  2. Double-checking Accuracy and Reliability: Ensure the information ChatGPT provides is accurate and relevant to your topic. Confirm its validity by cross-referencing with trustworthy sources.
  3. Putting Privacy and Security First: Be conscious of the data you share while interacting with ChatGPT. Protect your personal and sensitive information by avoiding unnecessary disclosures and following recommended security practices.
  4. Being Aware of AI-based Assistance Limitations: Recognize that ChatGPT might not have all the answers for every topic. Use it as a helpful sidekick rather than an all-knowing oracle.
  5. The Perfect Balance: Foster a productive partnership between AI and your own knowledge when exploring any subject. Let ChatGPT spark new ideas and possibilities while trusting your creativity and intuition for your final decisions.

P.S. – No one asked me to put this disclaimer here, but I did anyway. ChatGPT, in particular, can be extremely potent when using it with a specific intention and prior domain knowledge.

ChatGPT Guides & Prompts

Interested in other domains also? Be sure to check out our full list of guides: