Personal Financial Ratios

Personal Finance

Personal financial ratios -- savings rate, debt-to-income, liquidity ratio -- provide quick health checks for your finances. Like a company's financial statements, these ratios reveal whether your financial position is healthy and improving.

In detail

Key personal financial ratios:n1. Savings Rate = (Monthly savings / Monthly take-home) x 100nTargets: 20%+ good, 30%+ excellent, 40%+ FIRE tracknn2. Debt-to-Income Ratio = Monthly debt payments / Gross monthly incomenTarget: below 40% (RBI FOIR standard)nn3. Liquidity Ratio = Liquid assets / Monthly expensesnTarget: 3-6 months (emergency fund coverage)nn4. Net Worth Growth Rate = Year-on-year change in net worth / Last year net worthnTarget: at least 10-15% growth annuallynn5. Investment-to-Income Ratio = Annual investment / Annual incomenTarget: at least 20% of income invested

Formula

Savings Rate = Monthly savings / Net income x 100nDebt-to-Income = Total monthly debt payments / Gross income x 100nLiquidity Ratio = Cash + liquid investments / Monthly expenses

Real-life example

🇮🇳 India example

Arun's annual financial health check:nSavings rate: Rs 30K saved / Rs 1L take-home = 30% (excellent)nDebt-to-income: Rs 32K EMIs / Rs 1.25L gross = 25.6% (healthy)nLiquidity ratio: Rs 2.4L liquid / Rs 60K/month = 4 months (good)nNet worth growth: Rs 65L this year vs Rs 52L last year = 25% growth (excellent)nHe is financially healthy by all metrics.

Frequently asked questions

What is a good savings rate for Indians? ▼

Minimum 20%, ideally 30-40% during peak earning years (28-45). India historically has a national savings rate of 28-32%. High savings rate in early career dramatically accelerates wealth building due to compounding. Even Rs 5,000/month more in savings from age 25 vs 35 creates Rs 25-30L more corpus by age 60 at 12% CAGR.