Numbers can be scary, especially when it comes to personal finances. From calculating mortgage expense ratios to knowing how much to save in an emergency fund, it’s easy to become overwhelmed.

In this Headlines and Fine Print episode, PACU President & CEO Dion Williams gives best practices for planning your personal financial goals.

Mortgage Expense Ratio

Whether buying a haunted house or a log cabin in the woods, homeownership is a tremendous life event; the mortgage payment may be your most significant monthly expense.

Your ratio of housing expenses compares your mortgage costs, which include principal, interest, taxes and insurance, to your gross income.

Historically, the benchmark is 28%. For example, if your monthly gross income is $6,000, your housing expenses at 28% of your gross income would be $1,680.

When evaluating your housing expenses, Dion suggests considering your net income, which is your total income after taxes and deductions.

Budget isn’t a word many enjoy hearing, but for a home purchase, it’s wise to consider more than just the gross income ratio.

Dion advises considering other expenses, such as food, utilities, car insurance, dependents, phone, internet, streaming or cable. While ratios provide guidelines, relate those numbers to your situation to keep the mortgage affordable.

This leads us to one of the most critical questions when buying a house: “How much can I afford?”

Using the 28% mortgage payment-to-gross income metric is the top end of affordability. And that’s where most potential homeowners concentrate their search.

The fine print is that you know your budget better than anyone, so take extra time to look beyond one ratio or metric and consider the entire financial picture.

Total Debt to Income Ratio

Looking beyond the mortgage payment to gross income, there’s your total debt-to-income ratio.

The debt in this equation includes your mortgage payment, car loans, student loans, credit cards and personal loans.

The maximum overall debt-to-income ratio should be 40%, and if your maximum mortgage payment is 28%, that leaves 12% for non-mortgage debt.

The lower you keep these ratios, the more income you have available for other purposes and the less scary your finances will seem.

Credit Card Usage

Speaking of scary finances, credit cards often give the biggest fright when it comes to handling personal finances and debt.

Your credit card usage ratio measures how much your credit limit is utilized, and the recommended benchmark for credit utilization is 30%.

What is the best way to make sure there are no credit card debt monsters hiding under the bed? Carry no balance or keep your outstanding balances below 30% to minimize interest payments and increase available funds.

Emergency Funds

Try as you might to prevent them, spooky financial situations can arise at any time. That’s why Dion recommends having three to six months of saved essential expenses.

It takes time to build your savings, but remember that anything you have saved offsets what you may have to borrow when budgetary ghouls have you in a pinch.

Bringing it Full Circle

It’s in our bones to build around the expenses and hope something is left for savings. The fine print for this episode is to flip that ideology on its head. Start building your savings now, and then your expenses.

As you buy a home or incur other debt, don’t let them frighten you and detract from your savings habits. It may not be thrilling today, but years later, you’ll be thankful for having a savings fallback.

Ready to tackle your spooky, scary finances? Check out past episodes of Headlines and Fine Print on Spotify and YouTube.