Do you earn enough to reach financial nirvana? Take the quiz
To answer this question you really need to answer two questions.
“Do, I make enough money to get ahead?” and “Is my money working hard for me?” You need both of these answers on your side for sustained financial bliss.
To get started you need two numbers: Your monthly, after tax, income. (For most, this looks like adding up a month of paychecks.)
The second number is your housing costs. If you pay condo fees, maintenance, or homeowners insurance, these numbers are to be included in your housing cost number. For example, my mortgage is $1,500 + $1,300 monthly maintenance= $2,800 total housing cost.
Lastly, divide your housing cost by your monthly take-home pay. This gives you a percentage known as a modified housing ratio.**
Now that you have your ratio, let’s see if you make enough money to get ahead.
If your housing costs are 28% or less, you make enough to achieve your wildest financial fantasy. If the ratio is lower, you have an extreme advantage.
If the ratio is between 28% and 39% you still make enough to become a MIM, Millionaire or Millionairess in the Making, but you do have to get more creative.
If this number is 39% or greater, it’s harder to get ahead. Not impossible, but it does create an intense financial drag.
If you passed the first hurdle, the last question to answer: Is your money working hard for you?
If your ratio is under 39% and you’re not achieving all your financial goals, your money is not working as hard as it can. Ideally, you want your money to be working very efficiently before you add more money. If you don’t, the money will disappear like a water jug with a hole in it. There are countless examples of this truth. (One example is lottery winners. People who win the lottery statistically lose the fortune that they won and, folks, the lottery is blind. It doesn’t just pick people that are “bad” with money.)
This can happen even if you feel like you are good with your money. The clients that achieve the largest increase in their net worth are people who felt like they were already good with money.
You see, it’s the thinking, not the labor, that creates the fortune, and most people have never been taught how to make money work for them. That’s why, beyond investing in your 401(k) and saving, “making your money work harder” draws a blank. The first step to making your money work harder is to see where it’s all going. Use this one little tool to save $1000’s!
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** The housing ratio is what banks use to determine how much of a mortgage you qualify for. They use your pre-tax income. For example, if you make $100,000, they would say you could spend $28,000 a year, or $2,333 monthly, on a mortgage. My modified housing ratio is more conservative, leaving you with more “free cash” to finance your other goals.