6 Figures to Financial Success

Source: FOX Business

The Greek philosopher Pythagoras is reported to have said¸ “Numbers rule the universe.” Not a surprising observation for a man who was also a mathematician. But even ordinary people are often ruled by numbers on an almost daily basis¸ whether figuring sales tax¸ measuring a rug for the living room or baking a cake. We even give numbers magical powers¸ like a perfect 10¸ lucky sevens or a satanic 666.

Today¸ we’re perhaps most concerned about numbers that pertain to our personal finances. Depending on our stage of life¸ numbers can act like mile markers regarding some important questions: Am I saving enough? Is my net worth solid? Can I get a good interest rate with my credit score?

Here are six figures that can add up to a better life and a secure retirement.

Savings-to-Income Ratio at 35
One might be the loneliest number¸ according to the rock band Three Dog Night. But if you are in your 30s¸ you want to strive for a one-to-one ratio when you add up your liquid assets and compare them to your annual income. Liquid assets include a 401(k)¸ an IRA or a brokerage account and savings. But leave your home off the list; it can’t be converted easily to cash. In other words¸ a 35-year-old making $50¸000 should have $50¸000 in savings.

The ratio¸ according to standard wisdom¸ increases with age. For a couple aged 40¸ it should be around 1.5 or higher. At age 45¸ it should be around 3¸ and at age 50¸ it should be around 4.5¸ says Tom Orecchio¸ principal of Modera Wealth Management in Westwood¸ N.J. “This ratio will give you a good idea if you are saving enough of your income to reach your retirement goals¸” he says.

Years Widowed Can Tax-Shield Home Sale
A surviving spouse selling a primary residence is entitled to the same $500¸000 capital gains exclusion that married couples filing joint tax returns are allowed. But there are some requirements. The sale must take place within two years of the death of a spouse. The house must have been the primary residence for two out of the five years prior to the death. A capital gains exclusion cannot have been taken on another residence within two years prior to the death. And the remaining spouse must not have remarried. See this IRS publication for more information.

Months’ Expenses in Emergency Fund
Job losses and the freefall of the U.S. economy during the past two years have put this bit of numerical wisdom to the test. An emergency fund should cover big disasters such as a job loss or time off for medical issues. But right now¸ so many Americans are struggling just to pay their bills. To many¸ salting away three months’ living expenses seems impossible¸ let alone the six-month cushion some experts prefer¸ says Marcia Brixey¸ author of “The Money Therapist: A woman’s guide to a healthy financial life.”

One suggestion: Don’t put a rainy day fund in the bank or credit union you use regularly. “It’s way too easy to tra