If you want some simple ratios that can provide you with financial security today, try these on for size.
- How much house can you buy? Two times your gross income is a good rule.
If you earn $50,000, you can purchase a $100,000 home. If you earn $100,000, you can purchase a $200,000 home.
If you stay within that ratio, it will prevent you from getting in over your head.
- How much car can you buy? Financing half your annual income is acceptable.
If you make $40,000, you can finance a car for $20,000. If you make $30,000, you can finance a car for $15,000.
- Finally, if you spend only half of what you make in gross income before taxes, then you will have the other half for taxes, savings, and building your retirement nest egg.
The above info is courtesy of lawyer and car-buying expert Adam Goldfein, who fills in for Clark Howard from time to time.Visit AdamGoldfein.com for more information.