We’re celebrating Financial Literacy month in numeric style. Follow our crash course on maximizing your portfolio and finances with The 10 Essential Money Lessons.
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.
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:
- 750 and up: Good job. At this level you'll likely qualify for some of the best interest rates on loans.
- 710-750: Though you're not quite a VIP, you're still in the running to qualify for competitive offers.
- 650-710: Approval for credit is likely, but don't count on platinum status or top-tier rates.
- 580-650: You can still get credit, but rates will be subpar, and terms (such as credit limits and fees) will be so-so at best.
- 580 and below: Brace for denial and/or loan-shark rates.
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 report for free each year from the three major credit-reporting bureaus at annualcreditreport.com. (The actual credit scores from each bureau will cost you a few bucks.)
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.
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
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
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.
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.
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 …
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.
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.
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.