Numbers worth remembering

Some interesting numbers that is a constant reminder.

Hope I can pass of these down to my children.

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7 Quick Numbers To Fix Your Personal Financial Situation
http://www.gatherlittlebylittle.com/2009/08/7-quick-numbers-to-fix-your-personal-financial-situation/


100 minus your age to determine your asset allocation

This is a classic in financial planning circles. While this financial rule of thumbs won’t fit for every case, the basic principle remains: The older you are, the less money should be invested in equities.

Fixed income (like bonds, certificates of deposit) will provide stability in your investment portfolio. At retirement, the last thing you want is to see your nest egg losing a quarter of its value in a single year. Those who are retired and didn’t follow this rule of thumb suffered tremendously in 2008.

8,6%: Dow Jones Yield since 1930 (including the 2008 crash!)

As a financial planner, I usually tell my clients the stock market average return is about 9%. It is important to have a realistic yield expectation. This will allow you to build a stronger (and more reliable) retirement plan and will also avoid belief in the Maddoffs of this world who promise double digit annualized returns at all times. The truth is: there are no free lunches in finance!

Another word of caution; 8.6% over the past 78 years doesn’t include management fees. Therefore, if you buy mutual funds, you will have to pay, what we call, MERs (management fees). Make sure to ask your financial advisor what are the fees and how they impact your investments.



70% of you gross income should become your revenue at retirement

This is another great rule of thumb in financial planning used in creating a retirement plan. Most people carry several expenses related to working (transportation, specific clothing, eating out, etc.). Once retired, you should not have these expenses anymore. You should also be close to paying off your mortgage (we all hope!). Accordingly, 70% of what you earn before you retire should be enough to support your new lifestyle.

Don’t make the mistake of decreasing this amount when you reach 70-75 thinking you will do less activities and be traveling less often. It is true that you won’t spend in activities but chances that your health expenses will increase. Keep the same level of income (adjusted to inflation) in your retirement plan.

10% of your income should be saved for your retirement

In order to respect your financial plan and meet 70% of your income at retirement, one should save 10% of his gross income and invest it. This should be enough to support your lifestyle at retirement while putting 10% aside won’t kill you once you have done a budget.

This financial rule of thumb will vary depending on your age (and the age you want to retire) and your risk tolerance (that will influence your investment yield). These topics will be covered later on.

The Rule of 72

This is a quick mathematical rule to calculate how many years it will take for your investment to double depending on its yield. For example, if you invest $10,000 at a steady yield of 6%, your initial investment will worth $20,000 in 12 years. You simply divide the number 72 by your expected yield, it tells you how many years it will take to double your investment. So when you get a CD at 3%, you will need… 24 years to double your investment!

25% of your gross income should be allocated to your mortgage/rent payment

This should be used as guidance for your budget when you are looking to buy a house or change apartments. Considering that you already have to save 10% of your income for retirement and pay taxes, taking an additional 25% of your revenue should be enough to provide shelter without jeopardizing your financial situation.

You still need money for food, transportation, utilities and don’t forget to put money aside for your children’s education! You can always exceed 25% for your house payment but be aware that you will have to sacrifice something else in order to pay for the house of your dreams.