Concerned about how much you’re spending, how much you should be saving, and how much house you can afford? Use these easy equations to determine how fiscally healthy you are.
1. The price of your home should not be more than 2.5 times your annual gross household income.
2. Your total monthly debt payments (including mortgage, student loans, car, and credit card payments) should not be more than 35 percent of your monthly gross income. Some mortgage brokers will stretch this ratio up to 40 percent, but that leaves you very little budgetary wiggle room.
3. Your nest egg, if you want to retire comfortably, should be about 20 times what you want your annual income to be. If you anticipate needing about $75,000 a year to live on when you retire, you’ll need a nest egg of about $1.5 million. Of course, this will vary if you retire early or continue to work longer than usual.