Personal Finance Ratios | Measuring And Analyzing Your Finances

by RJ

in Money Management

“What Get’s Measured Gets Managed” – Peter Drucker

I made big gains in my finances, once I started measuring them. Having  quantitative instead of qualitative data, greatly improved my chances for success. Instead of guessing if my financial situation improved, I had specific numbers to back it up.408971482_c87bc0325f

Below are a few personal financial ratios, you can use as benchmarks. Doing this personal financial analysis, allows you to see weaknesses in your financial plan.

Personal Finance Ratios

Short Term Savings

Emergency Fund – Depending on your situation, 3-12 months of nondiscretionary expenses should be held in cash for emergencies.

Housing Ratio – Your rent or mortgage including principal, interest, taxes, and insurance should be no more than 28% of gross income.

Housing Ratio + All Other Debt Ratio – Your housing ratio, calculated above, plus all other recurring debt payments should be no larger than 36% of your gross income.

Long-Term Savings and Investments

Education Funding – Depending on the university, your benchmark is $1, 000, $3,000, or $6,000 per child, per year, for 18 years.

  • Public State University = $1,.000
  • Semi-Private University = $3,000
  • Competitive Private University = $6,000

Retirement Amount – By the time your 62, you should have saved 16 times the amount of income you will require during retirement. For example, if you need $100,000 a year, your retirement investments should equal $1,600,000. Calculate your long-term returns, using an 8% yearly return.

Savings Rate -10-15% of your income, should be saved towards retirement. The earlier you start, the less you need to save.


Life Insurance – If your financial situation calls for life insurance, a typical benchmark is 10-16 x gross income.

Disability Insurance – If you need a disability policy to replace your income, your benchmark is to replace 60-70% of your gross income if you’re paying your premium with after-tax dollars.

Home and Auto Insurance – Check your policy to make sure both your home and auto are covered at their fair market value.

What Is A Good Net Worth Ratio?

Don’t worry about your net worth compared to others. Instead, concentrate on improving your own net worth. A great goal is to improve your net worth by 1% each month. You will be amazed at the improvement you can make in just a few years if you work on getting that 1% improvement each month.

Are there any other personal finance ratios that I’m forgetting? If so, what are the ratios you use to measure your finances?

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{ 1 comment }

build mortgageNo Gravatar March 2, 2010 at 5:17 am

Getting your main fiancés under control and making them as low to your income is a good as there is more money to save for you for the future. Also the sooner big payments such as loans are mortgages are paid it frees up thousands a year for your retirement which will be needed more then.
.-= build mortgage´s last blog ..Bankruptcy And Buying A Home Types Of Bad Credit =-.

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