April brings spring showers and Tigers baseball! And it’s financial literacy month too! Which one are you more excited about? I bet its baseball. Ask any Tiger fan, and I bet they can rattle off a few baseball statistics about their favorite player. Baseball tracks everything. Runs batted in, pitches, runners left on base, errors, how well someone hits against a left handed pitcher when it is an evening game with a full moon. Everything.
Financial literacy on the other hand, is sadly lacking in our country. With 45% of households living with financial insecurity, it is time to understand your own financial statistics and take charge of your personal situation.
Here are some “financial stats” for you to track.
Debt to income ratio- how much are your debt payments against your income? This is credit card, car, loan, and mortgage payments divided by your gross income. This number should be less than 36%. If it is higher, than you need to get your debt paid down or get a better paying job. For example, if all your loan payments add up to $1,000 a month and your monthly gross income is $3,000, your debt to income ratio is 33%. A little on the high side.
What is your credit score? If it less than 670 you may need to work on repairing it. Check out your creditkarma.com. They have some wonderful tools for helping reduce debt and increasing your score. Since so much of our financial lives depends on a good score, it is imperative to have a good understanding of it.
Loan to value- if you own your home and have a mortgage, what is your mortgage balance divided by your home value? You should have at least 20% equity in your home. Less than that, you are treading on thin ice if the housing market would break down again.
What is your EFFECTIVE tax bracket? This is your tax liability (Not your refund or how much you paid in April) divided by your Adjusted Gross Income. For example, if your AGI was $100,000 but you had 4 personal exemptions, and $20,000 in itemized deductions, your tax bill was $7,900 which puts your EFFECTIVE rate at 7.9%. It is the average of your tax a bill.
Your MARGINAL TAX BRACKET is what your last dollar is taxed at, in the case above, the last dollar was taxed at 25%. The first $36,000 wasn’t taxed at all (The personal exemptions and itemized deductions) and then it was taxed at 10%, 15%, and finally 25%.
What is your SAVINGS RATE? How much did you put away for long term goals like retirement? If it was less than 10%, you may be falling behind. Take a look at how much you are putting in your retirement plan at work. If your employer is matching, you may be closer to that 10% than you thought. However, I recommend that women actually put more away because they live longer and will need more money than their male counterparts.
You can learn more about financial literacy and find some great free tools at www.financialliteracymonth.com. They also have a great 30 day challenge designed to help you get to financial wellness. Spread the word! Remember, no crying in baseball- and no crying about your money either.
Diane Young, RFC is the President of The Athena Financial which is located in downtown Rochester. She can be reached at 248-453-5252.
Financial planning and advisory services offered through Athena Advisory Services, Inc.