The automatic cuts by the federal government went into effect March 1 $85 billion is actually 2.4 percent of total federal budget. How many of us are making cuts so much greater than that?
Where and how one chooses to make cuts is critical to now and the future. Are you tired of living paycheck to paycheck? This is a good time to take action. Start with needs versus wants. Paycheck to paycheck doesnt have to be your standard.
Human nature being what it is, we like to measure personal progress, be it weight, school test scores, health or finances. Where do you stand? Goals surface as progress is evaluated. Start with this 20-question financial fitness quiz at http://njaes.rutgers.edu/money/ffquiz.
Some of these guidelines will appear vastly different from your results, but the closer you get, the more fiscally comfortable you become. Here are a few metrics to start with:
Overall expenses. It starts with knowing exactly what comes in and goes out. PowerPay.org is a free, secure Internet tool that allows you to enter your specific debts and monthly expense detail. It helps guide you through real costs as well as guidelines for each household expense. (Benchmark examples are 33 to 35 percent of income for housing and utilities, 18 to 25 percent for food.)
Debt-to-income ratio. Excluding mortgage, your monthly debt (credit cards, car loan and student loans) should be less than 15 percent of take-home pay. If its greater than 20 percent that should be considered a red flag and a financial concern. This ratio affects interest rates and insurance rates.
Emergency fund. Do you have quick access to cash equal to at least three months (preferably six months) of expected household expenses? That unexpected emergency from a job change, moving deposit and expenses, medical emergency or vehicle problem stresses our finances. This fund can be a combination of various liquid assets (money market funds, lines of credit, home equity line). According to AmericaSaves, 51 percent of families reported not having funds available to pay if they had an unexpected expense greater than $1,000 (not including lines of credit).
Net worth. There are numerous templates online, or one can just use a spreadsheet. Net worth is household debt subtracted from household assets. For example, if you sold everything you own and paid off all you owe, what would you have left? One commonly referenced metric indicating financial wealth is gross income (excluding inheritance) multiplied by age and divided by 10. Example ($60,000 x 50 / 10 = net worth of $300,000.
What do I need to retire? This calculation helps you determine what your retirement nest egg needs to be. When can you afford to retire? The number thrown around is often $1 million, but try to be specific for your needs. Based on anticipated expenses, a nest egg of $300,000 is needed for every $1,000 of monthly draw needed to supplement a pension and Social Security. For example, if your calculations indicate you need a $2,000 monthly draw, then a $600,000 nest egg is the goal.
email@example.com or 247-4355. Wendy Rice is family and consumer science agent for the La Plata County Extension Office.