Just like a doctor can make a quick assessment of your general health by checking your blood pressure, heart rate and temperature, with just a few quick questions you can get an overview of your personal finance health.
• Housing costs: Your total monthly housing costs, including mortgage or rent, property taxes and insurance shouldn’t exceed 28% of your gross monthly income.
• Debt payments: Look at your monthly payments for housing, loans and credit card debt. You should be spending no more than 36% of your gross monthly income on these bills.
• Emergency savings: You should maintain an emergency account with a balance equal to three months of expenses. If your household includes children or is supported by only one income, double that.
• Investment portfolio: The younger you are, the more risk you can afford to take in the stock market. As you get closer to retirement age, your portfolio should be weighted more heavily toward bonds. Deduct your age from 120; that’s the percentage of your portfolio that should be invested in stocks.
• Company stock: Maintain a diversified stock portfolio. Take advantage of an opportunity to buy you employer’s stocks, but don’t go over 10% of your total stock portfolio.
• Life insurance: Multiply your annual salary by five to determine your life insurance needs. If you have several children or a lot of debt, double that. If, however, you have no young children or debts, you can do without entirely.
• Retirement savings: Apply these general rules of thumb: If your employer matches your 401(k) contributions, contribute the maximum amount. Take advantage of any tax-deferred retirement accounts you can. If you’re conflicted about whether to save more for retirement or for your child’s college education, choose retirement; there are no retirement scholarships.
There are no rock ribbed personal finance rules, but tending to these seven areas of personal finance will go a long way to ensuring your security and your family’s. For more information on retirement planning, consult with a personal finance advisor.