Photo courtesy of Diana Parkhouse

Unless your last name is Trump or you were recently the last “Survivor” in Somoa, you’ll probably need a mortgage to purchase a home. Not many folks can afford to pay cash for a more than $100,000 purchase. But to get a mortgage, you have to prove that you can actually pay it off. And that means your lender will be looking at something called DTI or debt to income ratio.

Fortunately, this little calculation is pretty darned simple. Let’s see if you can figure it out on your own with these questions:

1.  What is your debt?

2. What is your income?

3. What is a ratio?

Of course, there are many ways to describe your debt (housing, housing + other debts) and many ways to describe your income (gross yearly, take-home monthly). But ratio? That’s simple.

A ratio is a way to compare two numbers, either by using a colon or a fraction. In this case, we’re looking for a number, so we’ll write the debt to income ratio as a fraction and then divide. But how do you know which is the numerator and which is the denominator?

Turns out that’s pretty simple, too. Look at the order: debt comes first, so it will be in the numerator; income comes second, so it will be the denominator. If you think of “to” as the fraction bar (or as division), this makes sense.

debt to income = [pmath size=12]debt/income[/pmath]

You can’t get much easier than division, especially if you can use a calculator. But in order to divide, you need to define your variables. In other words, you need to know what “debt” means and what “income” means.

In this situation, income is your monthly gross income. If you get a weekly paycheck, you’ll have to multiply that amount by four. If you paid twice each month, multiply by two. And if you get paid once each month, you don’t have to do a thing.

The debt can be calculated one of two ways. Some lenders only want to know what your expected housing debt is. This amount will include your monthly mortgage payment, insurance and taxes But these days, lenders are looking at your entire debt, which also includes monthly payments for child support, student loans, car loans  and minimum credit card payments — plus your expected housing debt. (You don’t need to include regular monthly bills like energy and childcare costs.)

Let’s say your monthly gross income is $3,027. You’ve figured out that you can afford an $890-per-month housing payment (to include mortgage, insurance and taxes). In addition, you have the following regular monthly debts: minimum monthly credit card payments ($35), student loan payments ($150) and car payment ($300). What is your debt-to-income ratio?

Method One: Simply divide your expected monthly housing expenses by your monthly gross income.

890 ÷ 3027 = 0.29

So using the first method, your debt-to-income ratio is 29%.

Method Two: Add all of your monthly debts and then divide by your gross income.

890 + 35 + 150 + 300 = 1375

1375 ÷ 3027 = 0.45

Looking at all of your monthly debt payments, your debt-to-income ratio is 45%.

But what does this mean? In short, these numbers spell danger. Anyone with a 40-49% DTI is not doing well financially. (Over 50% is considered “living dangerously.“) Most lenders like to see no more than 28% of your monthly debt going to housing costs (mortgage, insurance and taxes), and no more than 36% DTI over all.

If the above scenario were real, it’s very likely you would not be offered a mortgage. (And if you were, run in the other direction. You probably don’t want that kind of debt.) The goal, of course, is to get your DTI as close to 0% as possible. But anything below 28% for housing only and 36% for all debt is within reason.

What’s your DTI? Are you surprised by this amount? How can you reduce it? Feel free to respond in the comments section.

Photo courtesy of TheKarenD

I am not one to talk about my personal weight loss (or gain, usually), especially since I’ve spent years bouncing between feeling good about my figure and avoiding mirrors at all costs.

Fact is, I’ve tried lots and lots of diets — the South Beach Diet, Body for Life, calorie counting, Weight Watchers.  I’ve even tried hypnosis and extreme exercise.  But even though I have never felt completely successful in these attempts, I haven’t failed.  Each time, I’ve refined my goals and figured out things that I will and won’t do.

With all this in mind, I decided in late December that I was going to give Weight Watchers another try. Two things have happened since I was last actively using the program: the PointsPlus program has been refined just a bit, and I wrote a math book.  I have to say that thinking about math so much over the last year has been a great benefit in figuring the PointsPlus values for everything I eat.

(In case you have been living under a rock or don’t know who Jennifer Hudson is, the Weight Watchers program is based on a points system.  Each person is allotted a certain number of points per day, based on their weight and gender.  Everyone also has 49 extra points to eat throughout the week.  Foods have points values based on… well, read on, because that’s kind of what I’m getting to in this post.)

My daily PointsPlus allotment is 26.  I use online tools to help me track the points of the foods that I’m eating (and the drinks that I’m drinking).  And of course, I have those extra 49 points to spread throughout the week.

So first, my math brain figured out that if I use up all 49 points throughout the week (and believe me, I do!), that translates to 7 points per day.  If I only eat an extra 5 points one day, I have an extra 9 points on another day.  (The 49 points carry over, but if I don’t eat all 29 points in a day, poof! they’re gone.)

Believe me, I’ve gotten damn good at these little calculations.  An extra 2 points is the difference between a light and a regular beer.

But it’s the points values themselves that are so amazing, mathematically speaking.  Weight Watchers has done some pretty tricky math to make it easier for us to figure out what to eat.  Instead of counting just calories, we’re considering four components of our food:  protein, fiber, carbohydrates and fat.  These values are run through a formula that outputs a handy-dandy PointsPlus value.  (Online tools and special calculators find PointsPlus values for any foods, and common values are listed in a variety of Weight Watchers resources.)

This formula is pretty complex.  I’ve seen versions of it online, and apparently it is written in black and white in Weight Watcher’s patent.  But I don’t need to have the details to know some pretty simple things:

1.  Four of the formula’s variables are the amount of protein, fiber, carbohydrates and fat in the food.

2.  The answer is likely rounded, since PointsPlus values are all whole numbers.

That last one is pretty important.  It means that 0 points isn’t necessarily 0 points.

You see, almost all veggies and fruits count as 0 points — a big change in the program.  This makes perfect sense, because we should all be eating more fruits and veggies, not deciding between a banana and a low-calorie fruit bar that was made in a factory far, far away.

But fruits and veggies have calories and sugars. That means an apple may actually have 0.2 points (or something like that). So while one apple may be 0 points, 7 apples probably aren’t.  In other words, this is a case of 0 + 0 ≠ 0.

If you’re among the thousands of folks who joined Weight Watchers this month, count math among the skills that will help you lose weight — whether you’re counting your points or trying to make sense of how it all works!

Are you a Weight Watchers member? How have you used math to help you stay on track?  Or if you’ve managed your diet in other ways, how has math helped?  Respond in the comments section.

Photo courtesy of Pinti

January 2012 seems extra long this year!  In fact, there are five — count ‘em, five — Mondays in this month.  And while I’ve never missed a Math at Work Monday, I decided to take a break this week.  (Want to read up on previous Q&As for this month? Check them out:  Robert the exercise physiologist, Janine the professional organizer, Jameel the budget counselor and Kiki the career coach.)

This month has been all about New Year’s Resolutions: getting in shape and getting organized, boning up on budget basics and becoming your own boss.  But what are our chances of actually succeeding in any (or all) of these things?  Once again, I ask you: let’s look at the math.

According to a 2008 survey conducted by author and motivational speaker, Steven Shapiro and the Opinion Research Group (Princeton, NJ), 45 percent of Americans set New Year’s Resolutions, but only 8 percent of these reach their goals each year and 24 percent say they never keep their resolutions.

(Disclaimer: I really can’t vouch for the veracity of this study, because I can’t find the data.  But let’s go with it, just to prove my point.  The numbers aren’t really all that important.)

How many of you read those statistics and thought: “Well, there’s no point in even making resolutions! With chances like those, I’m doomed to fail!”

Here’s the good news: If you nodded your head, you are not alone.  And here’s the better news: Statistics don’t work that way.

It’s easy to look at stats and think that they must be true and must apply to everyone in every situation.  Cold, hard numbers don’t lie, right?  Maybe the numbers don’t lie, but it sure is tempting to use those numbers to describe something that isn’t true.  (Politicians do it all the time.)

There are a couple of ways to describe this particular fallacy.  But I think one of most important is to consider what is known as independent events.  See, each person who sets a New Year’s Resolution is independent of all of the other people who do the same thing.  (Even if you’re all making the same resolutions.)

And it gets even trickier.  Each year that you set a resolution is independent, and each resolution that you set is also — you guessed it — independent.

In other words, your success probably doesn’t have much of anything to do with how well others have followed through on their yearly goals — or even how well you’ve done in years past.  (I say probably, because you may be one of those folks who is easily influenced by statistics.  In other words, you may decide that you cannot succeed in meeting your resolutions, simply because you read somewhere that most people don’t.)

There’s tons of research out there on why people make resolutions and how they can be successful in them. If you looked at this research and determined that you have many of the same obstacles, maybe — just maybe — you could predict your chance of success.

But simply because many other people aren’t successful doesn’t mean you are automatically doomed to fail. Independence is only one reason for this.  Randomness is another.

Dice are random, but people aren’t.  (In fact, I saw a great video that demonstrates this last week.  Of course I can’t put my hands on it now, but I’ll post a link, if I do.)  While a (fair) die only has to worry about gravity, we have many more things that influence our behavior, decisions and more.  That doesn’t mean that people aren’t more likely to act a certain way under certain conditions.  But it certainly does mean that your New Year’s resolutions are not beholden to statistics.

So, the next time you read an article about the low rate of success with New Year’s Resolutions, remember this: You certainly can succeed — even if you failed last year. And if you are philosophically opposed to New Year’s resolutions, you’ll need a better reason than most people don’t keep them.

How are you doing with your New Year’s Resolutions?  Share in the comments section.  And come back on Wednesday — I’ll reveal how things are going with me!

Photo courtesy of D Sharon Pruitt

Every day, around the world, countless mothers (and quite a few fathers) are considering the same question: Now that my kids are older, is it time to go back to work?  The U.S. Census reported that there were 5 million stay-at-home mothers in 2010.  And the decision to forgo paid employment in favor of days filled with finger paint, potty-training and Mommy-And-Me playgroups is certainly rife with emotion and even debate.

It’s also very personal, and not just because these choices reflect our unique sets of values.  The decision to be a stay-at-home parent — or to return to work — is a financial one.

Let’s face it, if the family needs the money, going back to work sure beats sharing a one-bedroom apartment with three kids, a dog and a snoring partner.  Right?  But the math has to work out.

That’s because for many parents, returning to work means paying for childcare — and anyone who has done this knows it usually ain’t cheap.  The good news is that the math involved is pretty simple.  You just need to take a little time to work it out.

Jackie has three gorgeous kids, all under the age of 6 years old.  As the economy has worsened, her husband’s salary just isn’t going as far as it used to, and besides, she’d like to get back to her career as a pediatric nurse.  The doctor she once worked for called to see if she’d be interested in a part-time position at his practice.

Financially speaking, is this a good idea?  Let’s look at the numbers.

If she takes this position, she can earn $210 per day, after taxes, and she would be expected to work three days a week.  The practice doesn’t offer health insurance for part-time workers, but the family is on Jackie’s husband’s plan, so that’s a non-issue.  Other benefits are minimal, as there are no sick or vacation days and no retirement fund.  (She can switch schedules with another part-time nurse to cover any days she needs off.)

How much can she expect to earn each week?

$210 x 3 days = $630

Jackie can’t bring her kids to work with her or let them fend for themselves.  Nope, she’s got to think about laying out some cash for childcare, and like most folks, Jackie has a somewhat complex situation to consider.  Her oldest is in half-day Kindergarten, so she only needs part-time care for her.  But her three-year-old twins need to be looked after all day.  While her mom would love to watch the kids, the eight-hour commute to her house just isn’t practical.

Calling on friends and neighbors, Jackie considers her options.  Pretty quickly, her decision becomes clear.  Luckily, there’s a daycare center just around the corner from her daughter’s elementary school.  Even better, it offers part-time care.  And just down the street from Jackie’s house lives a woman who offers in-home care.  She places a few calls and learns that each place has openings.

Still, she needs to crunch the numbers.  The daycare center charges $50 per day, for part-time care.  The in-home caregiver charges $175 per week, per child.  How much of a hit will Jackie take in her take-home pay?

First, she needs to find the cost per week for her older daughter:

$50 x 3 days = $150

Next, she needs to find the weekly cost for her younger children:

$175 x 2 = $350

Finally, she adds the two together:

$150 + $350 = $500

So she can reasonably expect to pay $500 per week in childcare.  That means she’ll be taking home $130 each week.

$630 – $500 = $130

Yikes!  What looked like a great part-time salary is now looking pretty skimpy.  But there are two more calculations Jackie considers before freaking out: Her monthly and yearly take-home after childcare costs.

$130 x 4 weeks = $520 per month

$130 per week x 50 weeks = $6,500

These numbers tell her that she can contribute more than $500 each month to the mortgage payment.  Or if her husband gets that promotion he’s looking at, they could put almost $7,000 towards their savings.

There are also other financial benefits to consider.  For example, if Jackie keeps one foot in her career, she can get up to speed (and stay ahead of) changes in her field.  And if she’s already employed at the doctor’s office, she may be better positioned for a full-time job once the kids are all in school.

Now Jackie only has to deal with the emotional decisions — which are pretty tough.  But with these figures, she can at least say for sure how her family’s budget will benefit in the short run.

All you parents, what went into your decision to get back in the work force or stay at home? Did you do the math to figure out if it was financially worth it?  Or did the numbers show that staying at home was much more financially viable? Share your stories in the comments section.

Photo courtesy of shimelle

Deciding to leave a steady job with a steady income is a big step.  Leaving in favor of working for yourself might seem like the craziest idea of all.  Believe me.  I know from experience.

I’ve been a freelance writer for going on 11 years now, about half of that time while holding down a part- or full-time job.  But when my family decided to move to Maryland, I figured it was a good time to try freelancing “without a net.”  I didn’t have a job yet, but I did have a Rolodex full of great editorial contacts and a good understanding of how to build a freelance career.

Over the last six years, I’ve grown my business in many ways: from part-time to full-time, from focusing on journalism to writing a book and shifting my attention to curriculum development.  (I did the latter, when the bottom fell out of the magazine industry a few years ago.)

I can say two things about this experience: Math definitely helped me launch and sustain my new career. And I couldn’t have made the leap without the support and advice of writer extraordinaire and all-around generous gal, Linda Formichelli.

I met Linda when we were both starting out, but she was about a year ahead of me in the process.   These days, Linda is an accomplished writer with two books (The Renegade Writer and Query Letters that Rock), bylines from countless top-notch publications and a booming coaching business.

One thing that any experienced and successful freelance writer knows is this: The writing is secondary.  Sure, I’m in it to write.  But without some really good business skills, no one will hire me to do what I love.  In other words, we’re business owners first and writers second.  (And this is true for almost anyone who runs their own business.)

Unlike me, Linda doesn’t have a degree in mathematics.  (Her Master’s from Berkley UC is in Slavic Languages.)  Doesn’t matter.  Linda has learned to apply math to her freelance business.  First up: dealing with the bottom line.

“I needed to figure out my hourly copywriting rate based on how much I needed total to make a living plus the amount I needed for overhead — equipment, office supplies, etc.,” Linda says. “I divided that by the number of billable hours I predicted I would have in a year, and also had to keep in mind the going rates — what the market would bear.”

So no, Linda was not consumed with the kinds of pens she would use or scribbling by candlelight each night.  The practical won over the romantic.  Even with magazines.

“Magazines usually pay by the word, and I needed to figure out how that translated to an hourly rate,” she says. “For example, I sometimes make more money per hour writing for 50 cents per word versus $2 per word because the $2 per word articles are much more research-intensive and often required multiple rewrites.”

(I can’t tell you how important her last sentence is.  If a publication requires many hours of editing and rewrites — and some do — your hourly rate plummets.  This is part of what we freelancers call the PIA factor.)

Knowing how quickly she can write also helps establishing whether or not an assignment makes sense.

“I know that I can write about 800 words an hour (after the research and interviews are completed), so I can figure out how much time it will take me to write an article of any length,” she says. “For example, many articles run at around 1,500 words, so this will take me about two hours.”

Depending on what the client is offering, this may or may not be a good deal.  Here’s an example:

You’ve been offered a 1,500-word story assignment for your local alt weekly newspaper.  They’re willing to pay you $0.35 per word, and you’ll need to do four phone interviews.  You estimate that those interviews will take about an hour each, and you think you can write the story in two hours.  You’ve worked with them before, so you know you can count on about 1 hour of editing. Is the assignment worth it?  Let’s look at the math.

1,500 x $0.35 = $525

So if you do the story, you’ll earn $525.

4 hours (for interviews) + 2 hours (for writing) + 1 hour (for editing) = 7 hours

So you can expect to spend about 6 hours on the story in all.  (Notice, though, that there’s no time allotted for research or back-and-forth with the editor.  And you haven’t included any of the time you spent convincing the editor to give you the assignment.)

$525 ÷ 7 hours = $75 per hour

Now, maybe that’s a good rate for you and maybe it’s not.  Regardless, you now have a solid idea of whether or not you should take the assignment.

(If you’re not self-employed, you may be surprised by this rate.  But remember we self-employed folks are responsible for all overhead — equipment, facilities, health insurance, vacation and sick leave, taxes and retirement savings.)

And this works in all sorts of careers, whether you’re an artisan or have a landscaping business.  The math takes the guesswork out of business planning.  And it can keep you on track in any new business venture that comes your way.

If you are attending the American Society for Journalists and Authors (ASJA) conference in New York in April, be sure to check out my panel on math and writing.  I and two panelists will talk about how math is important in reporting and running a freelance business.  I promise it won’t be boring — and you’ll probably learn how to be a better reporter and business owner.  (Psst: Gretchen Rubin, author of The Happiness Project is the luncheon speaker!)

Hey freelancers (of all kinds): what’s your favorite math tip for running your business?  Share it in the comments section.

Photo courtesy of danielmoyle

So this is the year — you’re ready to launch out into a new career, start a business, get back into the workplace after taking time off to raise the kids.  Rebecca “Kiki” Weingarten, M.Sc.Ed, MFA knows all about these big decisions.  As an executive, corporate and career coach, she’s worked with lots of folks who want to make successful career changes with no regrets.  As the cofounder of Atypical Coaching, Kiki works with corporations and individuals.  She says she once hated math, but today she uses math to help her clients make solid decisions that ease their way into uncharted professional territory.

Can you explain what you do for a living?

Short answer? I work with corporations and individuals  in the US and internationally to set and reach their goals, maximize their potential and fend off anything that gets in the way of their achieving that. Or as my tag line says: Motivating & Guiding Clients to Achieve Success, Focus, Productivity, Stress Management, Balance & Transitions.

Long answer? As an executive, corporate and career coach I’ve worked with people and corporations/institutions in just about every industry on the planet from education, government, finance, business, technology, science, health care, psychology/mental health to numerous industries in the entertainment and creative arts fields including theater, film and writing.

When do you use basic math in your job?  

I’m a firm believer that math is part of just about everything we do. That means that I use math in my job all the time. If I’m working with clients on an business, start-up, corporation or entertainment or creative project we work with budgets, time, financial parameters of a project.

If I’m working with clients on making a career transition we work on the mathematics of finances. How much more or less money will I be making? What kinds of financial sacrifices or changes will I make? If I’m going to be making more money, how will I manage that? Will I need a financial planner?

The math is pretty important when I’m working with clients on life-work balance. How many hours are in your day? How many hours do you need to work? How many leisure hours are there?

Do you use any technology to help with this math?

I use it if necessary. When working with corporations or projects, I’ll work with the people who do the math and they use whatever tools they normally use. If it’s an individual the math part usually comes in the form of coaching tasks that I assign them to do and then we discuss the results and strategize next steps during our sessions.

How do you think math helps you do your job better?

I’m aware that math is part of everything, and I embrace it as much as possible. Math is the language of time, budgets, finances and financial decisions.

How comfortable with math do you feel?

I have an interesting relationship with math. In high school I was a whiz at English and history, but I didn’t apply myself when it came to math. The year I took geometry I totally bombed one semester and decided there was no way I was going to take the Regents exam twice.  So I sat down with the class math whiz and then alone for three days and studied. I totally aced the exam. That let me know that I could do it if I just applied myself.  But I really didn’t love math best, so it still wasn’t my favorite subject.

An amazing thing happened in college when I was studying for my Bachelor’s of Science in Education. I had to take a course on teaching early childhood math and my professor (whose name escapes me now – sadly, because she was wonderful!) LOVED her subject and was such an amazing teacher. I came to understand math in a new way. Turns out I loved teaching it. I wish I’d loved it as much in elementary and high school.

Did you have to learn new skills in order to do the math you use in your job?

I learn a new math language with all the different industries I’ve been in and coach. For example for multi-billion dollar and over one-million person target-group government projects that I’ve directed, I use one kind of math. Venture capital and business plan math is another kind. Entertainment budgeting is another kind of math, and when I’m coaching individuals on negotiating salary and compensation, that’s yet another kind of math.

Talking about money is an entirely different language, and I wish women were more comfortable speaking it. When working with women I find it’s a language they’re not as comfortable with as the men I work with. Even women in the corner offices, C-level, business owners, leaders in the corporate and other industries just aren’t as comfortable as they should be doing the math of the worth of their work and contributions. I work with them to do the math of who they are, what value they bring to their work (whatever it is), how to measure that in dollars and how to assert their value in order to get the financial rewards that they should get. Whether it’s during a job interview or asking for a raise.

One’s knowledge of math should be an evolving knowledge. School provides the basics and you keep your ears, mind and abilities ready and willing to learn new knowledge and incorporate new skills.

I often kid around that I learned a lot about coaching  by being an early childhood teacher which was my very first job. Math is no exception. I learned that math is part of every single day and most activities — shopping and spending, time, money, baking and cooking. If you pay attention to how much math is part of your daily life you’ll be amazed.

I love that Kiki talks about the language of math, because that’s what most folks are afraid of — and very good at.  You’re probably an expert in your own field, whether that’s being a mom or a speech therapist or a corporate executive.  That’s half the battle in using math to further (or launch) your career.

If you have questions for Kiki, ask them in the comments section.  I’ll make sure she knows they’re here!

Photo courtesy of beancounter

The first step to becoming more financially stable is writing down what you spend — and being honest about it.  But what happens when you subtract your expenses from your income, and you’re in the red?   Pouring yourself a stiff drink may be a first step, but it’s not going to solve the problem for you.  Instead, you’re going to have to put on your big-boy or -girl pants and get down to the business of trimming your spending.

But one of the tough parts about budgeting is making reasonable assumptions about what you should be spending on any one category of your budget.  Does it make sense to spend 50% of your income on housing?  Should you cut your monthly savings?

Our brains are funny little organs.  We can convince ourselves that we must have that huge flat-screen television set or we deserve to go out for drinks with the girls every Friday night.  But the numbers don’t lie.

Math can help keep you honest about what you’re earning, spending and putting away for a rainy day, retirement or when you decide that you’d rather be a writer than an advertising sales executive.

Each family or person is different, of course, but there are some great guidelines that can help you see if you’re on track. Here are some examples:

• Housing should cost no more than 28% to 33% of your monthly gross income.
• Groceries should account for about 18% of your monthly gross income.
• You should be saving between 10% and 20% of your monthly gross income.

This is one of those situations when math can really help you lower the emotional impact of your decisions. Knowing what is reasonable to spend on these items can make it easier for you to actually make the changes.

So let’s say you’ve tallied your income and expenses and come up short. (No wonder your credit card bills are so high!)  You  gross $3,127 each month, and your rent is $750 each month.  You spend about $650 on groceries and meals out each month, and you try to put away about $100 into savings.

Of these expenses, what should you cut?  Let’s take a look.  The experts estimate that your housing should cost no more than 28% to 33% of your monthly gross income:

28% of $3,127

0.28 x $3,127

$875.56

33% of $3,217

0.33 x $3,127

$1,031.91

Given your monthly income and the experts’ guidance, you should be spending between $875.56 and $1,031.91 each month on housing.  Your rent is much lower that that, so unless you’re having your living room redecorated by Martha Stewart herself, you should be good to go in that category.

On to groceries:

18% of $3,127

0.18 x $3,127

$562.86

But you’re spending $650 on groceries and eating out each month.  Clearly this is where you can cut some of your spending.

Finally, take a look at savings.  While you could zero this out, so that you can pay off some debt, it’s probably not a good idea to forgo savings altogether.  Besides, didn’t all of our parents preach about having a nest egg?  (In fact, financial experts recommend that we have the equivalent of at least 4 months of our salary tucked away — just in case.)  Building your savings takes discipline and time.  And there’s no better time than the present to get started.

But how are you doing now, according to the expert guidance?

10% of $3,127

0.10 x $3,127

$312.70

20% of $3,127

0.20 x $3,127

$625.40

Hold the phone.  With your measly $100, you’re not even close to what is recommended.  Perhaps you could cut back on your clothing budget, so that you can actually retire on time or have a safety net if your job suddenly goes poof!

I’m the first to admit that these suggested percents are not the be-all-end-all of budgeting advice.  Each one of us has extenuating circumstances to consider.  But why not start with the math?  In terms of what we’re spending, saving and earning, the numbers don’t lie.

P.S. For the really diligent among us, there’s something called the 50/30/20 budget: Must-have expenses (housing, food, insurance, etc.) should account for 50% of your income after taxes, while 30% should be “wants” and 20% should be savings.  The trick here is deciding what is actually a “need” and what is really a “want.”

Using these percents, how are you doing with your monthly spending? Calculate what you should be budgeting for housing, food and savings, and then compare those results with your actual spending and savings.  Tell us how you stack up in the comments section — and best of all, whether the result is surprising.

]]> http://www.mathforgrownups.com/trim-your-spending-with-percents/feed/ 0 http://www.mathforgrownups.com/budget-basics/ http://www.mathforgrownups.com/budget-basics/#comments Wed, 18 Jan 2012 10:00:09 +0000 Laura http://mathforgrownups.com/?p=1488

Photo courtesy of deedynamite

If your New Years resolution is to save money — or spend less — most financial folks will tell you one thing: you’ve gotta have a budget.  This means figuring out what you earn and how to spend those earnings.  Budgets can be complex or simple.  It all depends on what you are comfortable with.  (Personally, I go for simple, because all of those details keep me from maintaining good finances.  But if I needed to pay off a lot of debt or save a good amount of money, I might suck it up and look at every single penny.)

For today’s post, I thought I’d just print an excerpt of my book, Math for Grownups.  Chapter 8 is called “At the Bank,” and it deals with money issues (aside from shopping, transportation or housing, which are covered in chapters 1, 2 and 3).

It’s New Year;s Day, and Darrel is pondering his resolutions over a bowl of black-eyed peas.  For sure, he wants to reach level 65 in Purple Heart: World at War. And he wants to ask out that cute girl in the apartment next door.

But Darrel is also sick and tired of worrying about money.  He’s got a good job as a computer programmer, but for some reason, he’s still ending up with too many bills at the end of the month.  Last year, he had to sell is first-edition Spiderman comic to pick up a little extra cash.  He knows he needs to add a really, really boring New Year’s resolution to his list: keeping a personal finances budget.

He vaguely remembers what his high school consumer math teacher told him about budgets.  At least he remembers there are three parts: income, regular expenses, and occasional expenses.  His income should be greater than all of his expenses put together.

He writes the name of the month at the top of a piece of paper, January, and adds his current monthly income: $2,655.

He’s careful to put his take-home income, not his before-tax income, because that’s all he can spend.

Now he brainstorms all of his regular expenses, including his weekly comic store purchases.  Some of his expenses, such as his electric bill vary a bit form month to month, but he adds up the last year’s worth and divides by 12 to get a monthly average.

So far, so good.  It looks like Darrel is living within his means, but what will happen when he adds in his occasional expenses?  He brainstorms again, consulting his online banking records for guidance.

He divides that total by 12 to get his average monthly expense: $601.67.

Darrel adds his regular and occasional expenses together: $2,648 + 601.67 = $3,249.67. That’s more than his monthly take-home pay!  He’s going to have to cut back.  It takes Darrel only a few moments to recalibrate his budget.  He’s going to reduce the number of comic book conventions he goes to and cut down his satellite television expenses. With that, he notices that he can put some money each month into his languishing savings account.  And if, at the end of the year, he gets that raise he’s been expecting, he can put even more away for a rainy day.

This little bit of math gives Darrel a boost of confidence — enough confidence that he picks up the phone and calls his cute neighbor.

Do you use a budget?  If so, what kind?  And how has it helped you manage your finances?

Can you explain what you do for a living?

I help people get their finances organized.  Sometimes that involves actual bookkeeping work – going into people’s offices, balancing their checkbook, organizing their mail, entering stuff into a computer, generating checks for them to sign, and then making little spreadsheets for them to look at telling them when they’re going to run out of money.  This brings a bit of money which provides time for me to be a budget counselor.

The Budget Counseling is much more fun.  That’s where I sit with people one-on-one, have them tell me how often they get paid, how much they make, and what their bills are, amount due and due dates.  I plug everything into a spreadsheet (it takes about 30 minutes) and then I counsel them around whatever money issues they may have.  Some people are struggling and don’t know how to pay their bills, but most are making good money and don’t understand why it disappears on them.  Most sessions turn into therapy sessions rather than a discussion about making or saving money.

People with a lot of money are just as bad, if not worse, at managing their money as people with a little money.  In fact the amount of money and education you have has nothing to do with how well you manage your day-to-day money life.  It just takes arithmetic and subtraction, but many people find this hard to believe.

When do you use basic math in your job?

I use it every day.  Addition and subtraction.  Easy stuff, but people run from it screaming.  The spreadsheet I designed looks basically like a checkbook register (see below).  I use it for my own personal finances.  I plug in how much money a person has today.  Then I list all the times the person will have to spend money in the future (date, reason, amount).  Then I list all the times the person is expecting money in the future (date and amount).  Then I sort the list by date.  I’ve basically created a checkbook balance for the future.  This way they can know exactly how much extra money they have or when they’re going to run out of money.

Do you use any technology to help with this math?

I use Microsoft Excel spreadsheets.  It does addition and subtraction fast and sorts quickly.

How do you think math helps you do your job better?

I meet so many people that are constantly trying to figure out how much money they’ll have, if they can save more money, how much more money they need to make to make ends meet.  Or money is tight for them and they’re trying to figure out what to do about it – what bills can be paid, what bills can wait, how much they can spend on take out, or a birthday party, etc.  A spreadsheet like this tells me exactly how to handle all these situations.

When people come to me and ask me how to handle whatever problem they think they have with money, the first thing I do is create this spreadsheet with them, because then I can see a more accurate picture of really what’s going on with their day-to-day money.  Most people have a completely skewed idea about what’s going on with their money.  They base their day-to-day money decisions on feelings, superficial beliefs, and disorganization.  I hear people say crazy stuff like “My husband’s a doctor. I should be able to afford a cleaning lady,” or “I’m a single mother, I can’t afford to save money,” or my favorite, “The pile of bills on my desk is so big. I’m sure I don’t have the money to pay any of them.” None of these statements are based on anything related to math.  So I force people to give me the numbers, I do the math and then tell them what their money life is really like.  And it’s usually completely different than what they think.

How comfortable with math do you feel?

I’m very comfortable with math.  I was an actuarial consultant before I did this (I gathered data for actuaries), however, I wouldn’t relate my comfort with math to what I do.  My ability to counsel, organize chaos and take the emotion out of bills, debt, and money is what’s needed to do what I do.  Math just helps me get a quick snapshot of a person’s financial life.  Without that, you can’t start a counseling session.

What kind of math did you take in high school?

I was a numbers girl.  Hated reading.  Especially loved geometry and trigonometry.  I didn’t understand calculus at all.   Didn’t have the confidence to study math in college though, but ended up working with actuaries, just like my mom said I would!

Did you have to learn new skills in order to do the math you use in your job?

I taught myself how to do all this stuff.  I just used my personal experience and applied it to this mission.  When I quit my corporate job, it was to do something that would really help people, and I recognize now this was it.  Unfortunately the counseling doesn’t pay that well.  I’m still trying to work that out.

How do you use math to deal with your finances?  Share your experience in the comments section.

Photo courtesy of Rubber Maid Products

When I decided to organize my junk drawer two weeks ago, I did what most folks do — I purchased a drawer divider set with a variety of different sizes.  The idea is to group like things together.  The pencils go in one section, pens in another.  Littler compartments hold paper clips and Box Tops.  And the biggest container is for my precious scissors, which seem to go missing at least once every other day.

In fact, this is the No. 1 tennet of organization: A place for everything and everything in its place.  If I have a designated spot for my daughter’s erasers, they won’t be strewn around my kitchen counters or tossed into the silverware drawer.  (And she won’t be screaming in a fit of last-minute homework, “I can’t find an eraser!)

At least that’s the idea.

And that idea is as old as dirt.  In fact, it has its roots in mathematics, specifically set theory, which wasn’t formalized until Georg Cantor, a German mathematician, published an article on the subject in 1874.  This blew the socks off of the mathematics community — mainly because he proposed that there are two kinds of infinities.

But I digress.

Kindergarteners learn about set theory, when they circle like things on a worksheet.  And many parents probably wonder why this is such a big deal.

In short, set theory is the basis of our numerical systems — among many other things.  Mathematics craves order.  Knowing why things are alike or different can help us solve problems quickly and effortlessly.  Just like knowing where my scissors go (and putting them there) makes it easier for me to find them later on.

As an example, let’s look at the set of whole numbers.

{0, 1, 2, 3, 4, 5, 6, 7, … }

(Okay, just so no fancy-schmancy mathematician jumps down my throat, I have to note here that there is some disagreement about whether 0 belongs in this set.  But for most of the rest of the world, that’s a point not worth arguing about.)

When you know the set of whole numbers, you can determine whether or not a number is in that set.  For example:

0.25 is not a whole number

60% is not a whole number

π is not a whole number

-17 is not a whole number

But: 6,792,937 is a whole number

But why do you care? Honestly, I think the biggest reason is so that you can talk about math.  In this case, set theory tells us the difference between whole numbers, integers, decimals, rational numbers, etc. — even if you don’t remember what all of these are.

(And those of us who know a little bit about math also know that whole numbers are in the set of integers, which are in the set of rational numbers, which are in the set of decimals.)

So this is how math is like organizing.  Both depend on set theory.

I’m not saying that you have to be organized to do math.  Lord knows I’m not.  But the underlying organization of math points to big clues about how it’s done.  Even more basic sets, like geometric shapes can apply in our everyday lives.

The bottom line is this: If  you think  you can get your house or office or car organized (and I believe you can!), you can certainly organize all of what you know about math and put it to good use.  That way, you’ll always know where your area of a triangle is.

How do you think about the structure of numbers or shapes or arithmetic operations?  This points to your intuitive understanding of set theory.  Share your thoughts in the comments section!