We as Investors or having interest in Finance and Investing have come across various ratios in analyzing stocks/bonds of companies to understand their financial position/strength through various ratios obtained through Balance Sheet, Income Statement and Cashflow statements.
Even we are like companies as we manage our personal finances regularly. So, why don’t we check out books and arrive at ratios which we can track to check out personal financial position/strength regularly and make course corrections?
Given below are few key Personal Finance Ratios that we can track for ourselves.
I myself follow this and have found very useful.
Since I have read this a long time before, and from various magazines/sources, I don’t know exactly where I collected all of them.
Anyways, thanks for the authors who have published this earlier which helped me a lot.
Hope this helps you all too.
Liquidity Ratio. >15% is good = Liquid assets / Net worth
Debt to Asset Ratio. <=50% is good = Total liabilities / Total assets
Debt to Income Ratio. <=45% is good = Total annual debt payments / Total annual take home salary
Non-Mortgage Debt to Income Ratio. <15% is good = Total annual non-mortgage debt payment / Total annual take home pay
Life Insurance Cover Ratio. >= 7 is good = Present Life Cover / Total Post Tax Annual Income
Solvency Ratio. >= 50 is good = Total net worth / Total assets
Net Invested Assets to Net Worth >= 50 is good = Total Assets under investment / Networth – networth is taken as Total Assets-Total Liabilities
Asset to Liability Ratio >1 is good = Total Assets / Total Liabilities
Total debt-to-net worth Ratio. <1 is good = Total outstanding Loans / Networth
Savings Ratio. >20% is good = Savings / Gross income
Debt assets to Total assets Ratio. <20% is good = Value of asset bought through debt / Total Assets
Idle Cash Ratio. <=15% is good = (Cash, balance in savings account etc – Emergency Corpus) / Take-home pay
Wealth Ratio. > 1 is good = (Passive + Portfolio + Interest Income) / Total Expenses