Eileen's Blog

Money by the Numbers

October 13th, 2011 8:29 AM by Eileen Denhard

We all know we should be saving and that we should set financial goals, but any idea what those “magic numbers” are or how to how to reach those targets? Below, some key numbers, and a few pointers on how to get there.





0%



This is the percentage of your take-home pay that you should owe to the credit card companies.  That’s right – ideally, you shouldn’t owe anything to them.  You should pay off your balance every month.  Sadly, we don’t. The average household has nearly $16,000 in credit card debt and because this is high-interest debt, it’s important that you work toward paying it off.  Start with the high-interest rate cards and work your way down to the lower ones. Or, consider a balance transfer, but keep in mind that the best transfer offers—0% for 18 or 21 months, for example, with a minimal transfer fee of 3%–are reserved for those with the best credit. Research options on lowcards.com or cardratings.com.





15%



This is the minimum amount of your gross income that you should be saving every month — exclusively for retirement. Sound high? It’s only the minimum amount as this number presumes you are under the age of 30 or have been saving 10% of your pretax income since you were 25 years old.  The amount that most of us should be saving? At least 20%! The reality is that retirement is expensive.  In fact, to live comfortably in retirement, you’re going to need to replace about 100% of your pre-retirement income. Max out the retirement accounts, get in on the company match, and take advantage of catch-up contributions if you’re aged 50 or older.  Beyond that, consider working longer, scaling back on the spending, and redefining your vision of retirement.





25%-28%



Your housing costs (mortgage, insurance, and taxes) should be no more than 25%-28% of your monthly take-home pay. Run the numbers online using a mortgage calculator and if you’re over 28%, consider shrinking your monthly costs by making a larger down payment.



30%



True, the amount of your income that goes toward your housing costs does vary from one city to the next – it might be as low 15% to as much 50%, but the general ballpark is about 30%. The 40-1 rule is also relevant. Just to give you an example: if you’re paying $1800 a month in rent, you should be grossing $72,000 a year (40 X $1800 = $72,000).  Above these targets? You might want to consider getting a roommate.



Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.



Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Posted in:General
Posted by Eileen Denhard on October 13th, 2011 8:29 AM

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