This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Friday, January 4, 2008

Article: Capital Ideas

Posted By Paul

Wow, what an odd coincidence. The article that Matt just posted about was also sent to me by my sister and I wrote a similar "how I stack up versus the rules" article, I thought it would be cool to have both of our articles, so here is mine:

My sister sent me this article recently that I thought was interesting:

Capital Ideas

I thought the article was really interesting since it gave some guidelines for where you should be financially. I thought I would summarize the guidelines in the article and see how I'm doing relative to them.

"$10,000 is now about the average credit-card debt per household, according to cardtrak.com."

How Am I Doing?
I'm doing great here, credit card debt is 0.

"At 30, you should have your highest levels of debt (including mortgage, student loans and credit cards) to earnings, with total debt double your annual earnings. As you age, that figure should get smaller, and stay below 1:8. At the age of 45, debts should equal your annual salary."

How Am I Doing?
Since I'm sort of half way between 30 and 45, so I guess following the guideline would imply that I should have about 1.5 times my annual salary in debt. Assuming that since I'm married I should consider total household salary, then my calculations say that my debt to income ratio is almost exactly 1:1, so it sounds like I'm a bit ahead of schedule there.

"You should also aim to be saving 12 percent of your income annually, and the savings you amass should exceed your annual income in your 30s, says Farrell. By the time you are 40, you should have 1.7 times your income stashed away for retirement, and by 50, aim for three times your earnings."

How Am I Doing?
My wife and I actually save more like 15-20 percent of our salaries. It says that by the time you are 40 you should have 1.7 times your income stashed away for retirement. Currently my wife and I have about 1.85 times our salary in retirement accounts, so it looks like we're ahead of schedule there.

"Lenders (at least the sensible ones) like to see borrowers keep their housing expenses—including mortgage payments, insurance and property taxes—to 28 percent of gross income."

How Am I Doing?
I think a rough estimate is that our total mortgage, insurance and property taxes are about 10% of our gross income.

It looks like according to this article my wife and I are living a pretty savings heavy lifestyle. It looks like we're ahead of schedule as far as our savings and that our cash flow situation looks pretty good.

In fact my stats would look even better if the stock market hadn't taken such a beating in the last month or so.

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