Ernst & Haas Management Co Blog

[caption id="attachment_1525" align="aligncenter" width="225" caption="Percentages don't have to be burdensome!"][/caption] Nowadays, it seems like every extra penny needs to be saved somewhere. But the question is how much goes where? And at what age do you start saving for what? Courtesy of Real Simple Magazine, here's a quick reference guide that will help anyone at any age decipher how much should be put away for what: • 28% = The share of your pretax monthly income that should go toward housing costs. During the housing boom, many people laid out unrealistic amounts of their gross income (sometime 45% or higher) for their monthly mortgage payment, real estate taxes, and home owner's insurance. And everyone knows how that turned out. These days many banks have tighter lending standards, meaning they may not lend to someone whose housing payments are liable to exceed the benchmark of about 28%. • 120 - your age = The maximum percentage of your retirement savings that should be in stocks or stock mutual funds. Before the recent recession, many financial planners used 100 minus your age as a rule of thumb. So why the increase? Generally, people need more exposure to stocks to recoup what they lost during the market crash (since stocks have historically outperformed other investments). That said, stocks can be risky, so the closer you are to needing the money - say, for retirement - the less you should gamble with it. That's why this formula becomes more conservative year by year, as you get closer to cashing out. • 5% = The maximum percentage of your take-home pay that you should owe to credit card companies. In an ideal world, you would pay off your credit card every month. Realistically, however, you probably carry a balance; the average American household has $15,799 in credit-card debt, according to creditcards.com, an education site. Next to overdue taxes, this is the most expensive money you can owe - the average interest rate is 14.4&, according to a recent Bankrate survey. And the bigger the debt, the deeper the financial hole you'll find yourself in. That's why experts suggest you work to get your credit-card debt under 5% of your net pay. • 10% = The minimum amount of your pretax income to save for retirement. Chances are, you want to maintain your current living standard during your leisure years. First the bad news: Experts used to say that you would need 60%-80% of your current working income for your retirement years; now they recommend 100%, due to rising healthcare costs. The good news: It is possible to save that much - as long as you regularly tithe your own earnings. Use the retirement calculator at fidelity.com to compute your exact savings goal. • 1 = The number of times a year you should review your retirement portfolio. Saving for your post-job life is a long-term goal, so you don't need to tweak your investment choices often. (Yes, that applies even if your golden years are fast approaching.) And you certainly shouldn't try to time the market - that is, buy and sell according to whether the Dow is up or down, since experts say it's nearly impossible to succeed at that. • 10 x your gross income = The minimum amount of life insurance you should buy. Estimating how much money your surviving family members will need at some point in the (hopefully distant) future is a real head-scratcher. And most people lowball the number - sometimes to avoid higher premiums. Fortunately, buying the right amount of coverage is surprisingly affordable. We hope these numbers help direct you to a savings plan that is fitting for you and your lifestyle. And remember, the future is just as important as the present!