Financial Planning

According to an annual Gallup survey, for households with an income of $75,000+ per year: 39% prepare a detailed budget each month, 43% prepare a long-term financial plan, 35% use a CPA or financial planning to assist in planning, and 53% use a computer or online program to manage their money. The June 2013 table below provides a sampling of average household spending, based on pretax income.

Annual Household Spending

For the 1992-1993 academic year, the average debt for a BA graduate was $10,000; for the 2010-2011 year, the number was $37,100. In 1992-93, the percentage of students graduating with student or parent loans was ~ 45%; for the academic year 2010-2011, it was 67% (source: FinAid.org).

Statistics show that someone age 65 and in good health can be expected to live for almost 20 more years. However, the reality is that roughly half of those healthy folks age 65 will die before reaching age 85. This reality is worth considered when deciding up whether or not early Social Security benefits should be taken and whether certain types of annuities should be used.

Credit bureaus sell dozens of different credit scores; some are “educational,” designed for consumers, some generic, used by lenders, and still others are designed for mortgages or car loans. So, even when you get a copy of your credit score, it may not be easy to figure out what you have received.

Fair Isaac

An FTC study found that a quarter of the people who reviewed their credit reports found at least one potential “material” mistake. The credit industry points out that the FTC study also concluded that just 2.2% of the nearly 3,000 credit reports (5.2% of the participants) had errors severe enough to affect whether a person qualified for credit or earned a better interest rate.

A number of disability policies provide payments to those who are ill but can still work or may be recovering from an illness. There can be wide differences in how a disability insurance policy defines “work” and “disability.” Generally, a residual benefit can be received if someone returns to work but cannot do the same level of work or must take a lesser-paying job. To qualify, the income reduction must be at least 20% less than the previous earnings, and the reduction must be due to the medical condition.

An often-cited guide to home affordability is the “28/36 rule.” This guideline states that < 28% of pretax household income should be spent for mortgage payments (principal plus interest), property taxes, and home insurance. For example, if a couple grosses $100,000 a year, total annual housing costs should not be greater than $28,000 ($2,334 a month). Total household debt should not exceed 36% of pretax income.