Financial Ratios…

Money $mart Life has a terrific post called Stop Comparing Your Finances to Others. Five Ratios to Keep You on Track.

I know that I often read PF Blogs and compare myself to others. For a while, I just read PF Blogs because I was too afraid and ashamed to start my own. While my financial condition has deteriorated since starting my blog, I’ve learned a lot and I know that my financial condition is going to improve with focus and hard work. The following ratios are a good measure for determining if you are on track and living within your means and they will also highlight some room for improvement.

Here are the ratios and how I stack up:

Liquidity Ratio
Formula: Liquid Assets / Monthly Expenses
Target: 3-6 months
Me: $9,000 / $5,000 = 1.8 months (expense is based on emergency scenario)

Housing Payment Ratio
Formula: Monthly Housing Costs / Monthly Gross Income
Target: Less than 28%
Me: $1,100 / $4,500 = 24% (33% with utilities)

Solvency Ratio
Formula: Total Assets / Total Debt
Target: Greater than 1.0
Me: $208,980 / $301,330 = 0.69

Savings Ratio
Formula: Savings per Year / Annual Gross Income
Target: 8-25% depending on age
Me: $2,700 / $54,000 = 5% (10% with company match)

Debt to Income Ratio
Formula: Annual Debt Payment / Annual Gross Income
Target: Less than or equal to 30%
Me: $20,400 / $54,000 = 38% (Student Loans and CC/HELOC Refi)

*** Definitely some room for improvement. =)