Just by knowing some key numbers, you can address priorities like savings, investing and paying off debt without leaving everything else up in the air. Some we can give you, and some are easy to calculate for yourself, but all these figures can add up to an effective way to manage your money.
According to a recent Gallup poll, only 32% of Americans prepare a detailed budget.* Without one, most households won’t know concretely how much they spend compared to their earnings, a number also called "variance." Once you build your budget, you can better control everyday spending and focus on your long-term priorities. Download this budget spreadsheet to help you meet your personal goals and better understand your monthly income and expenses.
*Source: 2013 Gallup
While your budget's variance is an important number for you to know personally, your debt-to-income ratio (DTI) is an important number for lenders. DTI compares your monthly debt expenses, like car loans and mortgage payments, to your monthly income before taxes. The preferred maximum DTI for lenders is often around 36%, and a lower DTI can increase the likelihood you’ll qualify for loans and credit.
As in DTI (slide 2), a good credit score can help you qualify for better rates on loans. Payment history, amount owed, length of credit history and more go into calculating your score, and some factors carry more weight. The most commonly used credit score, your FICO score, falls between 300 and 850, with 850 being the best. Learn more helpful facts for understanding your credit score and credit reports.
If you're making payments to more than one lender, make sure you know the balances and interest rates for each debt so you can prioritize payments—paying off high-interest debt first means less interest paid over time. Your annual percentage rate can change each year or more frequently if it's a promotional or variable rate.
With budgeting and debt on your mind, you may forget about building an emergency fund. But it's important, too! In a true financial emergency, you should be able to cover all your major costs—including those you may not currently pay for out of pocket. Your emergency fund should have enough for at least 6 months to a year of expenses and cover costs like debt repayment and health care.
Managing your finances should also include preparing for the future—a priority some find hard to fit in their budgets. Small contributions to an investment or retirement fund can really add up over time. This example shows the effect investing $50 a week can have if you earn a steady rate of return. Not sure what number you're aiming for in your retirement savings? Find out with the Personal Retirement Calculator from Merrill Edge®.
Of course there are also risks that come with investing. You can't be sure of earning a steady rate of return and you might even lose money, so make sure you understand the risks before you begin an investing plan.
According to the 2014 Spring Merrill Edge Report, just getting your kid to his 18th birthday will cost more than $200,000 on average. And then there's college to consider. You can prepare for that step by learning about college savings plans from Merrill Edge®.
Everyone's financial situation adds up to something unique. Whether you want help with your budget, debt repayment or preparing for the future, make managing your money feel less like a juggling act by taking advantage of financial facts, tips and strategies that are available to you through BankofAmerica.com, or schedule time with a personal banker to go over your financial needs. And for questions about retirement planning, investing for college or other investment topics, set up time to speak with a Merrill Edge Financial Solutions Advisor™.