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.

I’ve admitted it here before: I’m a dedicated DIYer. Pinterest is a huge playground for me, and I scout craft shows for ideas I can try at home. Like most Martha Stewart wanna bes, I leave a lot of projects undone. It can turn out to be an expensive past time.

After years of this back-and-forth, I’ve realized one important few thing: sometimes DIY is more expensive — in money and time. That’s why I included the following in my book, Math for Grownups. Yes, the example is based on my own, personal experience, except that the ending turned out differently. (The obscure character? Luna of Harry Potter fame.) Had I really thought it through before heading to Joann’s Fabric, I would have saved myself some cash and a lot of time.

Rita loves Halloweʼen, and she loves making her kidsʼ costumes. This year, her 10-year-old daughter has requested a velvet-like cape and gown so that she can dress as some obscure character from her favorite novel about magical kids.

The pattern Rita is using calls for 7 yards of fabric, 2 fancy fasteners, and 3 yards of fringe. Looking at the Sunday circular for the local fabric store, she sees that crushed panne velvet is on sale for $2.99 per yard and the fringe is priced at $4 per yard. Rita guesses that the fasteners are about $5 each. To estimate her costs, she adds everything together:

(7 • $2.99) + (3 • $4) + (2 • $5)

(In case you lost track, that’s 7 yards of fabric at $2.99 per yard, 3 yards of fringe at $4 per yard, and 2 frog clasps at $5 each.)

$20.93 + $12 + $10 = $42.93

A terrifying price!

Rita is starting to think that a trip to a thrift shop might be a better investment of her time and money. Sometimes doing it yourself just isn’t worth it.

Do you have any scary costume stories? How have you learned to save money while DIY and celebrating Halloween?

For the last week, I’ve been suffering from a terrible cold of some sort, which has now taken up residence in my chest. Sometimes I have my voice, sometimes I don’t. Sometimes I sleep, most of the time I don’t. Sometimes I have energy, most of the time I’m sprawled out on my sofa hoping that something watchable will show up on my television set. So, I’m taking the easy way out with a short post today.

Having gone back and forth between the drugstore many times in the last week, I can’t help but wonder how much this whole thing is costing me.

3 cans chicken soup: $1.49 each = $4.47

3 bags Riccola lemon/mint, sugar-free lozenges: $2.05 = $6.15

1 bottle ibuprofen, 80 count: $7.99

1 bottle Delsym 12-hour cough syrup: $11.79

TOTAL: $30.40

At the grocery store today, I bought two bags of oranges for $5. A good night’s sleep is free and so is tap water. Prevention is the cheapest medicine. Lesson learned.

I’ll be back on Friday with a real post — unless I continue to go downhill with this stuff. In the meantime, if you’d like to share your cost-cutting strategies for dealing with or avoiding the common cold, I’m all ears. It’s likely I’ll be reading it at 2:00 this morning, while in the midst of a coughing fit. (Yeah, you should feel sorry for me.)

Oh and if this isn’t enough of a math fix for you, yesterday was Ada Lovelace Day — honoring all of the women who are tops in STEM (science, technology, engineering and mathematics) fields. Share your favorite brainy chick at the Math for Grownups facebook page.

On Wednesday, I showed you how to calculate the amount of money you’ll need in retirement — based on a variety of variables, including your pre-retirement income, the percentage of that income that you can live on in retirement and the number of years you expect to be in retirement. I even suggested that you find three or four goals for this — low, middle and high amounts — so that you have some realistic flexibility.

Even better is monitoring this savings along the line. Knowing what you should have already stashed away at age 30 or 40 or 50 can help you stay on track. If you’re behind, you can ratchet up your savings. If you’re way ahead, you can plan to quit your career a little earlier (or just bask in the really soft cushion you’ve created). Keeping an eye on these benchmarks helps you create a better plan.

But these calculations will naturally include a variety of assumptions — from how much you’re putting away in savings to the interest rates or return on investments. There’s no good way to really predict these, but retirement ratios have gotten pretty good reviews from some financial experts.

Retirement Ratios

Charles Farrell (not the silent film star) of Northstar Investment Advisors created a set of multipliers, outlined in his book, Your Money Ratios, that make it really simple to estimate these benchmarks. (In this case, multipliers are merely numbers that you multiply by. In essence they’re parts of proportions.) Like my suggestion to have several goals, Farrell developed bronze, silver and gold standards. (Bronze is 70% of income, retiring at 70 years old; silver is 70% of income, retiring at 65 years old; and gold is 80% of income, retiring at 65 years old.) His website and book detail these standards and benchmarks in really handy tables.

Basically, Farrell offers multipliers for each standard and each age. Pull the multiplier from the table, multiply it by your salary and — viola! — you have easily calculated a good estimate for how much you should have already saved by that age and for that standard.

Let’s look a simple example: retiring at age 70, with 70% of your income. And let’s say you earn $50,000 a year.  Here are four multipliers from Farrell’s tables: 30 years old at 0.45, 40 years old at 1.6, 50 years old at 3.5, 60 years old at 6.5 and 70 at 10.

30 years old: $50,000 • 0.45 = $22,500

40 years old: $50,000 • 1.6 = $80,000

50 years old: $50,000 • 3.5 = $175,000

60 years old: $50,000 • 6.5 = $325,000

70 years old: $50,000 •10 = $500,000

It’s not at all clear how Farrell came to these multipliers. (And I’m certain, like KFC’s secret recipe, he’s going to keep much of that to himself.) But, mathematically speaking, there’s something interesting to notice here. Your benchmarks are 10 years apart, but the difference between each goal is not a constant number. In other words, the difference between each consecutive year is not the same number.

Why is that? Well, if you think of the graph of compound interest, you’ll come to the answer quickly. Because compound interest is a curve, it increases quickly. This is a great thing when you’re dealing with savings. (It’s not so good with credit.) And if you look at the difference between each benchmark, you’ll see that over time, you’re retirement investments and savings are increasing by more and more.

And this should make perfect sense, if you look at the multipliers. These are not increasing in a constant way, either.

1.6 – 0.45 = 1.15

3.5 – 1.6 = 1.9

6.5 – 3.5 = 3

10 – 6.5 = 3.5

Each difference is slightly larger as you go up in age. If you were to graph the age and multiplier (or even product) on a coordinate plane (x-y axis), you’d have a curve.

The bottom line is this — as you age, you want your nest egg to increase exponentially, rather than linearly. In other words, you want your total to increase quickly, so that you can reach your retirement goals before you’re too old to take advantage of them.

What do you think of this process? How would having these benchmarks help you monitor your retirement savings more closely? Do you think it would be helpful to use these multipliers in your planning? Share your responses in the comments section.

What’s the most common math question I get from grownups? Easy: What’s the big deal about compound interest? For some reason, this idea stumps some very smart people. But the whole thing is pretty simple really. (Ha!) It all comes down to one concept — curves vs. lines.

You probably know that simple interest is, well, simple. That’s because it’s linear. (Stay with me here. I promise it’s not too hard.) In other words, simple interest can be described as a line. Now in mathematics, lines are very specific things. They go on forever, for one thing. For another, they’re straight. So while I might casually use the word “line” to describe a squiggly while I’m doodling, that’s a huge no-no in math. Among the Pythagorii and Sir Isaac Newtons, there’s no such thing as a “straight line.” By definition, a line is straight, not curved.

Because simple interest is linear, it increases (and decreases) steadily. Remember graphing linear equations? Take a look:

Graph courtesy of MoneyTipCentral

The graph above is an example of simple interest. As time goes on (or as you look to the right on the “time” axis), the money, $, increases. And it increases very steadily. If you can remember back to your algebra class, you know that each point on this line is found by taking the same steps — x number of “steps” to the right and y number of “steps” up. This is consistent. In other words, you don’t take 2 steps to the right and 1 step up and then 2 steps to the right and 4 steps down. (If you were really paying attention in algebra class, you might remember that this is a way of describing slope, which indicates the steepness of the line.)

Now curves are different. And, yep, you guessed it, compound interest is a curve. Here’s a general example:

Graph courtesy of MoneyTipCentral

If you looked at three points on this graph, you would find that the way to get from the first to the second to the third is not a consistent series of steps. There would be a pattern, yes, but it wouldn’t be the same each time. This is what we call a non-linear equation, because, well, it’s not linear. (Duh.)

But what can these graphs tell us? It’s not as hard as you might think. Take a look at the graphs themselves. As time increases, so does the money, right? (In other words, as you move to the right along “time” the graph moves up along “$.”) But with the curve, the $ gets bigger faster. It takes less time for the money to increase along the curve than it does along the line. (Follow me? If not, take a closer look at the graphs.)

That’s because of one simple fact: with compound interest, the interest is accrued on the principal (or original amount) and the interest. Each time the interest is calculated, the interest from the previous time period is added to the amount. On the other hand, with simple interest, the interest is accrued on the principal alone. That translates to a steady increase over time, rather than a sharp increase, like with the curve.

So what does this matter? Well, it depends on whether your spending or saving. Since with compound interest, the amount accrues faster over time, this is a good thing for savings or investments — but a bad thing for credit. And it’s the other way around for simple interest.

(Of course that is all moot, since unless you’re borrowing from good old dad, simple interest is pretty hard to come by.)

The point is this: if you can remember that simple interest is a line and compound interest is a curve, you will likely remember how simple and compound interest are figured — slow and steady or speedy quick.

Do you have questions about compound or simple interest? Is there another way that you remember the difference? Share your ideas in the comments section.

t’s summer. It’s hot. I’m busy with 9 million things. And so today, I bring you an excerpt from my book, Math for Grownups. If you’re wondering how to figure out the best vacation deal for you, read through this example. A little bit of planning–and math!–can help you relax, while you’re saving some cash.

Going on vacation means packing, finding someone to take care of Fido, and taking some time off from work. It also means charging some pretty hefty items on your credit card.

The finances of vacationing can boggle the mind. And even with online trip planners and the ability to comparison-shop with the click of a mouse, planning a vacation can make you ready for another one.

Red and Emily are ready for their second honeymoon. After 25 years of marriage, two kids, and the stress of everyday life, they deserve it. So Red is going to surprise Emily on their anniversary with a 1-week getaway to Aruba.

For 5 years, he’s been secretly putting away a little cash here and there. He’s got $7,500 saved up, and that’s just enough to whisk his bride away for some R & R. (That’s romance and rest.) Red has even arranged for Emily to take some time off from work.
But first he’s got to figure out how he can spend his vacation nest egg. After Emily goes to sleep, he cruises trip-planning websites looking for the best deal. And he’s very quickly overwhelmed.

There are all-inclusive packages, non-inclusive packages, romance packages, and adventure packages. Some include the cost of flights and drinks and meals. Others offer some combination of these features.

It’s going to be a long night.

Within an hour or so, Red has some options scribbled down on a piece of paper. He has chosen their destination—a secluded resort with 5-star dining, access to a private beach, a spa, and great online reviews. Now it’s on to the pricing. There are a number of options:

Because two of his options don’t include airfare, Red prices out some flights. He finds out that he can get two round-trip tickets for about $925. Not bad!

If he chooses a non-inclusive option, he’ll need to pay for meals, drinks, and activities. And that requires more research. Red wonders whether there is a good way to estimate these.

He considers meals first. The resort includes a free breakfast, so he won’t need to include that in his calculations. But unless they’re going with the all-inclusive option, they will have to buy lunches and dinners. Red does some more research and comes up with the following numbers:

Average lunch → $25/person
Average dinner → $60/person
Average lunch → $25/person
Average dinner → $60/person

And because there are two of them, and they’ll be there for 7 full days:

Lunches: $50 per day for 7 days = $350
Dinners: $120 per day for 7 days = $840

It looks like the cost of meals will be $350 + $850, or $1,190.

He and Emily aren’t big drinkers, so that’s pretty simple to figure out. Assuming that the cost of drinks is pretty high, he guesses $25 a day for two fancy cocktails, and if they have a nice bottle of wine with dinner each night, that’ll run them about $200 for the week.

($25 • 7) + $200 = $375

Now, Red thinks about activities. A day on a sailboat and some snorkeling sounds great ($450). Then he’d like to book a few spa treatments for Emily ($500).

$450 + $500 = $950

Because all of the prices so far have included tax, Red doesn’t no need to do any math for that. But he will need to tip the baggage carriers, taxi drivers, servers, and spa staff. Red takes a shot in the dark, and guesses $350 for all gratuities. (That could be too much, but it’s probably not going to be too little.)

This is a ton of information, and Red’s legal pad looks like a football coach’s playbook. He’d better get organized if he wants to book this trip and get some sleep. Red decides to make a list.


All-inclusive = $7,225

Romance package: $6,150 (package) + $925 (air) =  $7,075

Hotel + Travel: $4,340 (hotel/air) + $1,915 (meals/drinks/tips) + $950 (activities) =       $7,205

A la carte: $3,450 (hotel) + $925 (air) + $1,915 (meals, etc.) + $950 (activities) =  $7,240

Now Red can really consider his options.

The most expensive choice is à la carte, but all of the totals are pretty darned close. If he goes by price alone, the clear winner is the Hotel + Travel package. But that requires him to handle everything on his own—and honestly, he’s ready for bed.

On the other hand, the Romance package is only $70 more. And right now, that extra bit of cash seems worth it. Red pulls out his credit card and books their flights and vacation packages. Then he snuggles up next to Emily and savors his little surprise!

How have you found the best travel deals? Share your ideas in the comments section.

I’m no big world traveler. So when faced with the prospect of filling an entire month with travel-related blog posts, I reached out to more experienced folks. Fellow freelance writer, Beth Hughes offered to write this post, detailing how she’s able to hop the globe on a limited budget. While there’s not a lot of hard math here, she does share a really smart estimation tip that helps her keep cash in her wallet–for her next trip. And you can definitely see how a little bit of planning and observation adds up to big savings. So, welcome Beth!

When I travel, I usually head to pricey places like Japan, Hong Kong and Hawaii. Yet I’ve figured out how to make these trips without breaking the bank, even when the dollar is weak. The key is planning, observing, and a little mental trickery.

Before you go

Use a travel agent. Because I usually travel with a friend, my agent, Julie Sturgeon of Curing Cold Feet, creates custom group packages for us. Savings on our last 10-day jaunt to Hawaii were about $20 each, or a tank of gas. Some years, she saves us twice that.   Savings: $20-$40

Decide how connected you must be. Free WiFi is not ubiquitous. Select a hotel with free WiFi so you can stay in touch via email and Skype if you have a smartphone or other device.  Savings: up to $20 per day

Make sure you select a hotel that equips the rooms with an electric kettle and a refrigerator. Pack food for your arrival if you’re getting in late–small cans of pop-top tuna, packs of instant oatmeal, a little jar of peanut butter and some crackers. Pack coffee or tea, and any equipment for preparing it. Savings: about $10 per day

Research the fees your bank’s ATM network, what it charges for ATM withdrawals and what service fee it tacks onto credit card purchases outside the United States. Your goal is to reduce the fee burden by withdrawing enough cash from an affiliated ATM to cover anticipated expenses for five or six days. You get a better exchange rate than you do at a moneychanger. In Tokyo recently, the airport moneychanger offered ¥71 for each US$1 while an affiliated bank’s ATM gave me ¥78. Stash the extra cash in your hotel room safe. Avoid using your credit card for a cash advance. The interest rates are punishing. Savingsup to $25

Upon Arrival

Buy a SIM card with the least expensive international call and data plan that you can top off online using a credit card. (In Japan, tourists must rent SIM cards.) The SIM card will be valid for as long as six months. You will probably leave money behind but compared with international roaming charges, it’s less than a pittance. Savings: up to $50

After a good night’s sleep,  start saving by making breakfast in your room. While this is a traveler’s tip as old as the Appian Way I figure it saved us about $200 each on a recent Tokyo stay.

Here’s how: Our budget hotel offered a daily breakfast buffet for ¥1,900 per person, or a whopping $208 per person if we had indulged for all nine mornings of our stay. So we traveled with a pound of ground coffee, which cost US$12, filters, a drip cone and our own tall, insulated travel mugs. That gave us each two cups of good coffee each morning with plenty left over for a boost if we returned in the afternoon before setting out on the night shift. We stocked up on individual yogurts, which averaged ¥100 each, spent about the same amount on fresh fruit and bought a pint of milk for coffee.

Our breakfast total per person for nine days: about ¥2,000, or $25. We’re not big breakfast eaters but if we could have added in bags of granola (¥298 per) or boxes of cereal (¥350- ¥500) and still saved. Savings: $200

Our trick for lunch in an expensive city is “Follow the office ladies!” They gravitate to good, cheap food. In Bangkok, I ended up in a utility company cafeteria that welcomed anybody who could find it, just by trailing office workers. On weekends, follow the middle-aged ladies traveling in pairs for a meal out with good chat on the side. Rarely did lunch in Tokyo cost more than $10 or $12. Wherever we ended up, and it was never a food court, we would order one of the lunch specials, always and everywhere the cheap date of meals. By making lunch the main meal of the day, we were then free to indulge ourselves with happy hours or splash out with a dainty dinner at a big-name joint. Savings: $200

Mind Trick

Now for my mind game, and yes, I am dim enough to trick myself by rounding down when making mental currency conversions(Editor’s note: I don’t think this is dim at all–but a pretty darned smart use of estimations!)

Here’s how it worked on a trip to Hong Kong, where the exchange rate has been stable for the past 10 years: US$1 converting in a narrow range to HK$7.8 to HK$7.6.

Rather than deal with decimals, I divided a price in HK dollars by US$7. This made everything from menu selections to a pink leather wallet that caught my eye seem more expensive than they were. So much for splurging in a notorious paradise for food and fashion.

I also set a daily budget. If I came in under, I didn’t automatically roll the money over to the next day. I put it in a separate pocket in my wallet. Then, when a local friend suggested a Michelin-starred restaurant for lunch, I ponied up from my secret stash.

Even with that magnificent meal, I returned home with US$279 of my budgeted travel kitty unspent. That’s a whisker less than half the cost of a ticket from the West Coast to Hawaii, and about one quarter the price of my next trans-Pacific flight. I’m thinking late November, early December before the holiday rush when the fares spike.

Do you have questions for master traveler Beth Hughes? If so, please ask in the comments section. And share your own cash-saving tips for travel!

If you run your own business — like I do — your personal and professional expenses will overlap. So I understood exactly what commenter, Emma, was getting at when she posted this on Wednesday:

My question is like this: what are some things I can do to keep saving when I know I have large expenses that come up a lot? I’m am actor, and I’ve had several big trips for auditions and jobs the past few months that have taken a lot of money all at once to get me to where I needed to go, staying over in a hotel, food on the road, that kind of thing. And I get home and it’s like…. oh. Guess my savings for that pay period is kind of shot.

Here’s the short answer: You have to budget for these expenses, even though they’re not regular. The costs of traveling to auditions and jobs is what I would call overhead. But whether these are business or personal expenses, the issue is the same: You’ve got to budget for them.

The same is true for anyone facing irregular or unexpected costs. Many financial advisors suggest something called an Emergency Fund (EF). Whether this fund is used for home repairs, unexpected medical costs, to replace a totalled car or to travel to The Poughkeepskie Playhouse to star in a revival of 42nd Street, the mission is the same — have enough cash on hand to cover unforeseen expenses.

You also must budget for savings. Even if it’s only $50 each month, make sure that this money is going into a savings account before other expenses are paid for. I like to say that I’m paying myself first. After a while, you won’t even know that it’s gone. You might even be able to set up an automatic transfer, which is a great way to keep you honest.

Why do you need savings? Well, the answer is obvious. If you literally follow the old stage adage and do break your leg, you could be out of commission for a while — no auditions + no gigs = empty bank account. In fact, it’s now recommended that you have six months to a year of living expenses in your bank account for this very reason. So, if you’re spending $3,500 each month, you’ll need $21,000 to $42,000 in the bank to take care of these emergencies. That’s a lot of cash!

If that amount feels out of reach, set some goals — 10% by the end of the year, for example. Doing a few calculations can help you break things up into manageable pieces.

And here’s the other thing: you can squirrel away cash for lots of different reasons, including travel. You could decide to split your savings deposit, putting 70% in an emergency fund and 30% in an auditions/jobs account. So, if you have $100 for savings each month, that would mean $70 in savings and $30 in a travel account. This will give you some cushion, if a really cool opportunity comes up that you haven’t budgeted for.

So how do you budget for travel to auditions and jobs (or create an emergency fund)? My suggestion is to take a look at what you’ve spent in the past. Add up all of your audition expenses for the last three months and divide by three. (Or over the last year and divide by 12 or whatever numbers you have on hand.) Then take a good critical look at that number. Does it realistically represent what you normally spend on auditions and jobs? Did you go on more or fewer than usual? Did you have to fly farther or stay in an expensive city? Adjust this number based on the answers to those questions.

Now you have a good idea of what you can expect to spend each month on traveling to auditions or gigs. More than likely, this won’t be an exact number. If you spend less, put the extra in an auditions/jobs account. If you spend more, take it from that account. (And if you don’t have enough saved up yet, you might need to make other adjustments to your budget — like eating Ramen noodles for a while.)

Here’s one more step you can take. Your business is like mine. It’s feast or famine — you never know exactly how much you’ll be bringing in each month. So estimating a percent that you can use for travel expenses can help you stay on track. There are several ways to do this, and here’s one idea:

1. Find your average monthly expenses for traveling to auditions and jobs. (This is what you did above.)

2. Find your average monthly other expenses. (This will include rent, groceries, utilities, education costs, and yes, savings.)

3. Add the two together to get your total average monthly expenses. (Another way to think of this is your total income.)

4. Divide the travel expenses by the total. That will be your audition expenses rate.

So let’s say that your average monthly audition expenses are $2,000 and your other monthly expenses are averaged at $4,500. That means the average of your total monthly expenses (or total income) is $6,500. To find the audition expenses rate, divide:

2,000 ÷ 6,500 = 0.31 or 31%

So, on average, 31% of your monthly expenses should go to traveling for auditions and jobs. Even if your monthly expenses go up or down, you can keep this percent in mind for setting your audition expenses budget. If you’re making less money, you can trim your travel expenses. If you’re making more money, you can up that part of your budget.

Hope that helps, Emma!

Do you have different advice for Emma? If so feel free to share (nicely) in the comments section. How do you think this process would work for your unexpected expenses? If you have a personal finance question, don’t hesitate to ask!

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.