Over the last three years, there has been no bigger news story than personal finance. And for good reason. Most economists agree that our home-buying habits (fueled by dangerous lending practices) contributed to the Great Recession. Plus, most Americans were completely caught off guard by our plummeting economy — left without adequate savings when we needed it the most.

Sadly, some things haven’t changed much. Take a look at these scary statistics:

— Forty percent of Americans say they are saving less this year than they did last year, and 39 percent say they have no retirement savings (Harris Interactive).

— But according to the same survey, 28 percent say they are spending more this year than they did last.

— The U.S. student loan debt is now $870 billion (with a b), according to the Federal Reserve Bank of New York, and it is expected to reach $1 trillion (with a t) very soon. This is way, way more than the country’s credit card debt and auto loan debt.

— Harris Interactive reports that 56 percent of all American households have no personal finance budget.

Last month was Math Appreciation Month — and it was also Financial Literacy Month. We couldn’t celebrate both at the same time, so May will be devoted to the math behind personal finance here are Math for Grownups.

Financial literacy has a lot in common with math. For many folks, the concepts are scary and somewhat mysterious. And in my experience there are many, many personal finance experts who prescribe a right and wrong way to approach money management. This month, I’ll take a look at both of these things.

We’ll consider the math behind budgets, credit card payments and savings. I’ll show you a few quick ways to estimate your financial health, and we’ll explore how you can apply your own methods to reaching financial stability (or teaching your kids the benefits of financial responsibility). Experts, including a mortgage broker, financial planner and more, will share how they use math in their jobs and even how you can harness your math know-how and become a better steward of your money. We’ll also look at lots of statistics. (What does the reduction in home values actually mean?)

Meanwhile, if you have questions about this subject you’d like to ask, share them in the comments section. I’ll be drawing up a plan for the month, and I’d love to hear what you think!

Buckle up — this is math everyone can use.

If you’ve ever been in the market for a house, you know what the real estate agent asks first. It’s not the number of bedrooms or neighborhood or whether or not the home has a detached garage.

“What is your price range?”

Because whatever you have to spend will dictate the size of your house, where it is located and its amenities. Like it or not.

But how do you know how much you can spend?

Luckily, there are a few guidelines that can help you set this price before you even call on the agent. The following three rules use math to set your home-buying budget.

The Total Price Tag: Five times your annual gross salary

Remember how the diamond industry once told young men that an engagement ring should cost the equivalent of two months income? Of course that is simply a marketing plan. But there are similar and reliable guidelines for home buying.

These days, experts recommend spending no more than five times your gross salary on a home.* Let’s say that you gross $32,450 each year. Five times that is the most you should be spending on a house.

5 • $32,450 = $162,250

With that salary, you should spend no more than $162,250 on a home.

Of course the economy should be taken into consideration. If you’re concerned about losing your job, either purchase a much less expensive home or skip home buying until things get more stable. And if you have extra expenses, like college tuition or medical care for an ailing relative, put those in the mix as well. You might consider subtracting these large expenses from your gross salary, before multiplying by 5.

*It’s worth it to mention that the experts disagree on this multiplier: some suggest 1.5 times your gross salary, while others shoot for 2.5, 3 or 5 times. It’s always best to err on the side of caution, but any of these multipliers are much better than simply taking a wild guess.

Month to Month: A percent of your monthly income

Another way to consider this purchase is by looking at the monthly mortgage payment. (You may want to do both!) Financial planners advise homeowners to spend 28% to 33% of their monthly income on housing costs — that means rent or mortgage, and maintance.

It’s okay to look at a ball park figure here. Let’s say you bring home $1,995 each month. Using the percents above, you can reasonably spend 28% to 33% of this on housing.

0.28 • $1,995 = $558.60

0.33 • $1,995 = $658.35

So all things considered, you can budget between $558.60 and $658.35 each month on housing. (Your real estate agent can help you estimate your monthly mortgage payment, which will include taxes, interest and sometimes insurance.)

Maintain and Repair: A percent of the home’s value

But what about those maintenance and repair bills? Owning a house means fixing the furnace if it goes out, getting the gutters cleaned and repairing a leaky roof.

Lucky you: real estate experts have come up with another little guideline that will help you estimate these expenses. The cost of home maintenance can be estimated at 1% to 2% of the home’s valueeach year.  Let’s say you are considering a home priced at $155,000.

0.01 • $155,000 = $1,550

0.02 • $155,000 = $3,100

Does this mean you will absolutely spend no more than $3,100 each year in home repairs? Nope. Some years you may not come close, and in other years, you may exceed this amount by thousands of dollars.  And as the value of your home increases — as you hope it will! — the cost of repairs and maintenance will increase as well. Still this little benchmark can help you figure out if you can afford the home you have your eye on.

So there you have it. Three rules that can guide your home purchasing process. Do a little math, and you could make a very smart home purchase.

Do you have questions about these figures? Have you used these or similar guidelines in budgeting a home purchase? Post a comment!

Welcome back to Math at Work Monday! (We took time off from this regular feature, so that we could spend more time celebrating Math Appreciation Month.) If you’re new here, each Monday I post an interview with someone about how they use math in their jobs. I’ve interviewed Maryland’s Commissioner of Health, one of my former students who is a glass blower and my sister who is a speech therapist

Because we’re focusing on personal finance this month, I thought it would be a great idea to reintroduce you to Jameel Webb-Davis, a financial organizer and budget counselor who helps people get realistic about their finances. 

Can you explain what you do for a living?

I help people get their finances organized.  Sometimes that involves actual bookkeeping work – going into people’s offices, balancing their checkbook, organizing their mail, entering stuff into a computer, generating checks for them to sign, and then making little spreadsheets for them to look at telling them when they’re going to run out of money.  This brings a bit of money which provides time for me to be a budget counselor.

The Budget Counseling is much more fun.  That’s where I sit with people one-on-one, have them tell me how often they get paid, how much they make, and what their bills are, amount due and due dates.  I plug everything into a spreadsheet (it takes about 30 minutes) and then I counsel them around whatever money issues they may have.  Some people are struggling and don’t know how to pay their bills, but most are making good money and don’t understand why it disappears on them.  Most sessions turn into therapy sessions rather than a discussion about making or saving money.

People with a lot of money are just as bad, if not worse, at managing their money as people with a little money.  In fact the amount of money and education you have has nothing to do with how well you manage your day-to-day money life.  It just takes arithmetic and subtraction, but many people find this hard to believe.

When do you use basic math in your job?

I use it every day.  Addition and subtraction.  Easy stuff, but people run from it screaming.  The spreadsheet I designed looks basically like a checkbook register (see it here).  I use it for my own personal finances.  I plug in how much money a person has today.  Then I list all the times the person will have to spend money in the future (date, reason, amount).  Then I list all the times the person is expecting money in the future (date and amount).  Then I sort the list by date.  I’ve basically created a checkbook balance for the future.  This way they can know exactly how much extra money they have or when they’re going to run out of money.

Read the rest of the post here. If you have questions, feel free to ask them here or in the original post. I’ll see them in both places, and I’ll be sure to let Jameel know.

The first step to becoming more financially stable is writing down what you spend — and being honest about it.  But what happens when you subtract your expenses from your income, and you’re in the red?   Pouring yourself a stiff drink may be a first step, but it’s not going to solve the problem for you.  Instead, you’re going to have to put on your big-boy or -girl pants and get down to the business of trimming your spending.

But one of the tough parts about budgeting is making reasonable assumptions about what you should be spending on any one category of your budget.  Does it make sense to spend 50% of your income on housing?  Should you cut your monthly savings?

Our brains are funny little organs.  We can convince ourselves that we must have that huge flat-screen television set or we deserve to go out for drinks with the girls every Friday night.  But the numbers don’t lie.

Math can help keep you honest about what you’re earning, spending and putting away for a rainy day, retirement or when you decide that you’d rather be a writer than an advertising sales executive.

Each family or person is different, of course, but there are some great guidelines that can help you see if you’re on track. Here are some examples:

  • Housing should cost no more than 28% to 33% of your monthly gross income.
  • Groceries should account for about 18% of your monthly gross income.
  • You should be saving between 10% and 20% of your monthly gross income.

This is one of those situations when math can really help you lower the emotional impact of your decisions. Knowing what is reasonable to spend on these items can make it easier for you to actually make the changes.

So let’s say you’ve tallied your income and expenses and come up short. (No wonder your credit card bills are so high!)  You  gross $3,127 each month, and your rent is $750 each month.  You spend about $650 on groceries and meals out each month, and you try to put away about $100 into savings.

Of these expenses, what should you cut?  Let’s take a look.  The experts estimate that your housing should cost no more than 28% to 33% of your monthly gross income:

28% of $3,127

0.28 x $3,127


33% of $3,217

0.33 x $3,127


Given your monthly income and the experts’ guidance, you should be spending between $875.56 and $1,031.91 each month on housing.  Your rent is much lower that that, so unless you’re having your living room redecorated by Martha Stewart herself, you should be good to go in that category.

On to groceries:

18% of $3,127

0.18 x $3,127


But you’re spending $650 on groceries and eating out each month.  Clearly this is where you can cut some of your spending.

Finally, take a look at savings.  While you could zero this out, so that you can pay off some debt, it’s probably not a good idea to forgo savings altogether.  Besides, didn’t all of our parents preach about having a nest egg?  (In fact, financial experts recommend that we have the equivalent of at least 4 months of our salary tucked away — just in case.)  Building your savings takes discipline and time.  And there’s no better time than the present to get started.

But how are you doing now, according to the expert guidance?

10% of $3,127

0.10 x $3,127


20% of $3,127

0.20 x $3,127


Hold the phone.  With your measly $100, you’re not even close to what is recommended.  Perhaps you could cut back on your clothing budget, so that you can actually retire on time or have a safety net if your job suddenly goes poof!

I’m the first to admit that these suggested percents are not the be-all-end-all of budgeting advice.  Each one of us has extenuating circumstances to consider.  But why not start with the math?  In terms of what we’re spending, saving and earning, the numbers don’t lie.

P.S. For the really diligent among us, there’s something called the 50/30/20 budget: Must-have expenses (housing, food, insurance, etc.) should account for 50% of your income after taxes, while 30% should be “wants” and 20% should be savings.  The trick here is deciding what is actually a “need” and what is really a “want.”

Using these percents, how are you doing with your monthly spending? Calculate what you should be budgeting for housing, food and savings, and then compare those results with your actual spending and savings.  Tell us how you stack up in the comments section — and best of all, whether the result is surprising.

your New Years resolution is to save money — or spend less — most financial folks will tell you one thing: you’ve gotta have a budget.  This means figuring out what you earn and how to spend those earnings.  Budgets can be complex or simple.  It all depends on what you are comfortable with.  (Personally, I go for simple, because all of those details keep me from maintaining good finances.  But if I needed to pay off a lot of debt or save a good amount of money, I might suck it up and look at every single penny.)

For today’s post, I thought I’d just print an excerpt of my book, Math for Grownups.  Chapter 8 is called “At the Bank,” and it deals with money issues (aside from shopping, transportation or housing, which are covered in chapters 1, 2 and 3).

It’s New Year;s Day, and Darrel is pondering his resolutions over a bowl of black-eyed peas.  For sure, he wants to reach level 65 in Purple Heart: World at War. And he wants to ask out that cute girl in the apartment next door.

But Darrel is also sick and tired of worrying about money.  He’s got a good job as a computer programmer, but for some reason, he’s still ending up with too many bills at the end of the month.  Last year, he had to sell is first-edition Spiderman comic to pick up a little extra cash.  He knows he needs to add a really, really boring New Year’s resolution to his list: keeping a personal finances budget.

He vaguely remembers what his high school consumer math teacher told him about budgets.  At least he remembers there are three parts: income, regular expenses, and occasional expenses.  His income should be greater than all of his expenses put together.

He writes the name of the month at the top of a piece of paper, January, and adds his current monthly income: $2,655.

He’s careful to put his take-home income, not his before-tax income, because that’s all he can spend.

Now he brainstorms all of his regular expenses, including his weekly comic store purchases.  Some of his expenses, such as his electric bill vary a bit form month to month, but he adds up the last year’s worth and divides by 12 to get a monthly average.

Rent$800College loans$200
Car payment$360

So far, so good.  It looks like Darrel is living within his means, but what will happen when he adds in his occasional expenses?  He brainstorms again, consulting his online banking records for guidance.

Occasional Expenses
ItemCostTotal per year
Car insurances$450 every quarter$1,800
Comic book conventions$4,200 per year$4,200
Professional association dues$500 per year$500
Dojo fees$275 per semester$550
Gifts$170 per year$170

He divides that total by 12 to get his average monthly expense: $601.67.

Darrel adds his regular and occasional expenses together: $2,648 + 601.67 = $3,249.67. That’s more than his monthly take-home pay!  He’s going to have to cut back.  It takes Darrel only a few moments to recalibrate his budget.  He’s going to reduce the number of comic book conventions he goes to and cut down his satellite television expenses. With that, he notices that he can put some money each month into his languishing savings account.  And if, at the end of the year, he gets that raise he’s been expecting, he can put even more away for a rainy day.

This little bit of math gives Darrel a boost of confidence — enough confidence that he picks up the phone and calls his cute neighbor.

Do you use a budget?  If so, what kind?  And how has it helped you manage your finances?

What is a television line producer, and how long have you been doing this job?

Production companies hire me after they’ve received the “green light” to develop and produce a new television series. The first thing I do is read something called the bible, a document that explains the concept, visual look and tone of the show. My job is to create a production budget based on the amount of money the executive producer has for the entire project. For example, if he or she gives me $6 million to produce 26 episodes, I need to allocate every cent within several dozen categories over the length of the production. I also create the pre-production, shooting and post-production schedules, assist with casting, hire the technical crews and then oversee the whole project from beginning to end.  I’ve been doing this work for 23 years.

When do you use basic math in your job?

I have to break everything down in the budget and make sure we only spend what we have! So for example, I have to figure out how many days we need a wardrobe assistant, how much it will cost, and make sure we have some wiggle room for overtime, extra prep days, etc. Sometimes, if I’m working on a smaller budget show, I’m the one who calculates the actors’ and technicians’ time sheets, so lots of adding, multiplication, etc.

Every week or so, I have to do cash flow reports; how much I estimated to spend, the actual costs, and estimated future costs. It all has to balance out, so if we do lots of overtime one week, I need to figure out what needs to be cut over the coming weeks to make up for that shortfall.

Do you use any technology (like calculators or computers) to help with this math?  Why or why not?

Oh yes!! Time sheets are now calculated on the computer, but I still check everything with a calculator, as I’ve fallen victim to incorrect formats. Nothing worse than a camera operator coming up to you saying his paycheck is wrong!! Cash flows and budgets are either done on Excel or through special software, often MovieMagic, which has programs for film and television scheduling and budgeting.


I have to admit I also still count on my fingers sometimes

How do you think math helps you do your job better?

It forces me to focus on what is perhaps the most important part of any creative project: the bottom line. Television is lots of fun, but it’s a business, and the executives and broadcasters expect me to deliver a project on budget. Time is money when you’re on-set, so even 15 minutes of overtime can sink you, if you have dozens of cast and crew to pay. Math makes me more organized!

How comfortable with math do you feel?

Today, I’m very comfortable with math, but since I have a tendency to do everything quickly, my challenge is always to slow down and get it right.*

What kind of math did you take in high school?

I hated math all through school, and always excelled at writing, and other creative subjects. I had one fabulous math teacher in tenth grade who finally made math fun. Good thing I was in his class, because I’d always figured I’d never need math to pursue my career goals, but was amazed years later to discover how much math I needed when I started working in television production. I was a script supervisor whose duties included timing segments with a stop-watch, adding things up and making sure we wouldn’t go into editing with too many long scenes. I was terrified of making math errors, and realized quickly to slow down, relax and always double-check my work.

Wendy Helfenbaum is a writer and television producer in Montreal, Canada. Visit her at http://www.taketwoproductions.ca.

*This is perhaps the best advice I can offer anyone who is struggling with math.  Only your fifth-grade teacher and the Mathletes coach care how quickly you can do calculations.

Last week’s Math at Work feature was with my sister, Melissa, who is a speech therapist.