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My Financial Ratios

February 6th, 2007 at 02:59 pm

I read on www.moneysmartlife.com about the 5 financial ratios you should know to keep you on track.

Out of curiosity I did 3 of the calculations to see where I stand. The calculates below do not use my DH's data since we have seperate accounts/bill responsibilities.

1. Liquidity Ratio=Liquid Assets/Monthly Income. Target: 3-6 months.
Mine calculated to 1.23. Yikes - i guess I am the defination of living paycheck to paycheck Smile Of couse I would like to think that if something did happen to my job, some of my monthly expenses (like daycare) would be less or nothing.

2. Savings Ratio=Savings per year/Annual Gross Income. Target 8/25% depending on age.
My savings ratio calculated to 5.26%. I am hoping to somehow save an additional 1,420 this year to raise my percentage to the minimum 8%. Once I get my car paid off I should be able to put a little more in savings. Also once the girls get out of daycare in a few years I should be able to save a much higher percentage.

3. Debt to income ratio=Annual Debt payment/Annual gross income. Target is less than 30%.
Mine is only 12% (I don't pay the mortgage). However if you calculate in my daycare bill (which feels like debt) it is over 37%.

Here is the article if you want to read it:

1 Responses to “My Financial Ratios”

  1. monkeymama Says:

    Thanks for the post - I put it in my blog too - interesting.

    I am with you on #1 - I could lower my expenses pretty significantly if I lost my job. No more preschool, gardener, cable, no more commuting gas. Would save about $800/month right there. Plus I was getting paid $800/week disability last year and was plenty - for whatever reason when you really buckle down you really buckle down. We went pretty seamlessly to $5k/month expenses to $3500/month when I was on maternity leave, and I Couldn't even tell you how. Just less driving, going out, shopping, etc. I Don't know. We just knew we had no money to spend, and a new baby to entertain us I guess! But I am still trying to be conservative in my calcs so I don't underestimate!

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