October 11th, 2011
Recently there’s been a lot of talk about financial goals and being financially responsible, but many of us don’t really know what those goals are, or what being responsible means. Besides checking your credit score, it can be difficult to gauge where you match up to others.
In her blog post “Money by the Numbers,” Vera Gibbons throws out some numbers that money-conscientious people can use as guidelines to decide what they need to do to reach financial goals.
0 percent. Ideally, you should owe credit card companies zero percent of your take-home pay. In other words, you should pay off your balance every month. Credit card debt is the worst kind of debt because it’s high-interest, so it should be your number one priority of debt to pay off.
If you have more than one credit card, detmine which carries that highest rate and begin paying that one first. If you have good credit, you may want to consider transferring the balance of your highest interest card to a card with a lower rate. Well-qualified borrowers may be eligible for deals like 0 percent for 18 or 21 months with a minimal transfer fee of 3 percent. Research your options at cardratings.com.
15 percent. This is the minimum amount of your gross income that you should be saving each month for retirement. It may seem high, but that’s just the minimum amount! Retirement is expensive, and to live comfortable Gibbons says you’ll need to replace about 100 percent of your pre-retirement income. Consider your retirement accounts and company match options early to avoid problems later on it life.
25-28 percent. If you’re a homeowner, your mortgage, insurance and taxes should account for 25 to 28 percent of your monthly income. Do the math on a mortgage calculator, and if you’re over 28 percent consider putting more money down or refinancing.
30 percent. Housing costs vary from city to city, but on average they account for 30 percent of your monthly income if you rent. Gibbons says to use the 40-1 rule to decide if you’re on target. For example if you pay $1,000 in rent per month, you should be making at least $40,000 per year (40 x 1,000 = 40,000).