Investing and personal finance is all numbers. Need to calculate
something? The mathletes among us love it. Everyone else, however,
reverts to their 15-year-old selves, scrambling for any excuse to ditch
first-period algebra class.
For those who preferred playing hooky over crunching numbers, this
crash course is for you. It's a rundown of the 10 wallet-swelling (or
depleting) numbers you'll be glad you finally stuck around to learn.
850
That's the maximum FICO score (aka, credit
score) on a scale of 300-850. Per our personal finance and VH1-reruns
guru, Dayana Yochim, here's how your credit score stacks up:
Source: John Ulzheimer, President, Credit.com Educational Services.
Based on FICO scoring range 300-850. A higher score indicates lower
credit risk.
Get your credit score up now, or pay for it later when lenders (or
future spouses) penalize you. Keep in mind that this scale is only
approximate, and your credit score doesn't factor in other
considerations that come up when you're shopping for a loan (e.g. your
savings or your income). So, your mileage may vary, especially when
credit is tight -- like now.
Remember, you can get your credit score for free each year from the three major credit reporting bureaus at annualcreditreport.com.
40 Years
That's how long it'll take you to
amass a million dollars (an arbitrary number) if you save $25,000 a
year (another arbitrary number) and put it under your mattress (aka, a
no-interest checking account).
If you can earn just 5% a year on it, you get to a million dollars in just 22 years.
At the lower end of the market's historical average of 8-10%, it's just 18 years.
It also works the other way. If you can earn 8% on your money, you'd
only have to save $3,600 a year to reach a million dollars in 40 years.
Compounding interest is a beautiful thing. It's the engine that
fuels a comfortable retirement. But one caution: The historical stock
market average is not necessarily the average going forward. Choose an asset allocation between stocks and bonds that will let you sleep at night.
14%
Average credit card APR rates are roughly
14% as I write this, which are high enough, but they can easily jump
much higher -- to the mid-twenties -- if you miss a payment or break
any other rule your lender comes up with. Remember the beauty of
compound interest we were talking about before? Well, credit card debt
is the ugly flip side.
Why you care: On the "penny saved is a penny earned" principle,
paying off your debt gives you a guaranteed 14% return (or thereabouts,
depending on your actual rate) on your investment. Sure, Warren
Buffett's achieved those kinds of book value returns (and then some) at
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), but
when the market has only averaged 8%-10% returns, 14% returns seem a
bit unrealistic. So, unless you're the greatest investor in the world,
pay down your MasterCard s (NYSE: MA) and Visa s (NYSE: V)!
$8,000
The average American household has just
over $8,000 in revolving debt (mostly credit card debt). That's a
mountain of financial stress. Yes, our economy is 70% consumer
spending, but Amazon.com (Nasdaq: AMZN), Tiffany (NYSE: TIF), and Apple
(Nasdaq: AAPL) will still be around for future consumption if you
decide to slow your spending a bit in the here and now. Seriously, make a plan to start paying down your credit card debt today.
6 months
Once again, I turn to fellow Fool
Dayana Yochim for an explanation: "On emergency savings, I recommend
socking away enough to cover three to six months of your essential
living expenses if you're able-bodied and don't have any dependents
(e.g. a spouse that works and no kids). Shoot for more than six months
of savings if you are the sole breadwinner and work in a shaky
industry, don't interview well, or if you are the Octomom." As with
insurance, you won't appreciate it on the sunny days, but you'll be
grateful when it rains.
5 years
Only long-term money should be a
candidate for the stock market. Money you'll need in the next five to
seven years should be in safer instruments because the stock market is
just too volatile in the short term. Click here for the asset allocation basics.
15%
Speaking of long-term thinking …
investments held for a year or less are taxed at ordinary income tax
rates (up to 35%). However, long-term capital gains are taxed a maximum
of 15%. Yet another reason to be a long-term buy and hold investor …
$16,500
This is the 401k contribution maximum for 2009. Tax benefits from the government and perhaps a match from your employer make saving for retirement that much more beneficial.
132,453
As of today, that's the number of CAPS
members who are sharing their stock-picking insights. Each member makes
his or her stock picks and is ranked against all the other members. As
Fool co-founder David Gardner
likes to say, this is your chance to "back it up." It's also a great
source for Foolish stock research. It's 100% free, and there's no shame
in just reading what fellow Fools are predicting before you take the
plunge by making your own calls. Start here.
867-5309
After you've mastered the nine numbers
above, you can shift your mind back to more important matters … like
listening to guilty-pleasure '80s music.
© 2009 UCLICK, L.L.C.
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