In the quest for financial clarity, ratios are your trusty compass. They demystify the journey, offering solid answers to the "Am I on the right track?" question. Here's the lowdown on the key ratios, served straight up. Remember, these are ballpark figures – tailor them to fit your financial wardrobe. General targets listed below should be considered for general financial educational purposes only and not personal financial advice. Reach out to personal financial advisor if you’re looking for personal financial advice.
Consumer Debt Ratio: This ratio tells you if debt's taking too big a slice of your paycheck pie.
Formula: Monthly Debt Payments / Monthly Net Income
General Target: Under 20% - it's the green zone where debt doesn't call the shots.
Housing Cost Ratio: It's all about balancing a roof over your head with the cash in your pocket.
Formula: Monthly Housing Costs / Monthly Gross Income
General Target: Roughly 28% - a sweet spot that keeps your living costs grounded.
Liquidity Ratio: Think of this as your financial life vest. It shows if you can swim through a storm.
Formula: Liquid Assets / Monthly Expenses
General Target: The more you can cover, the smoother you'll sail through emergencies.
Savings Ratio: Your financial future's foundation. How much are you stashing away?
Formula: Monthly Savings / Monthly Gross Income
General Target: There's no one-size-fits-all, but the thicker your savings cushion, the softer your landing.
Total Debt Ratio: The big picture on debt – how much of your income is going toward what you owe.
Formula: Total Monthly Debt Payments / Monthly Gross Income
General Target: 36% - that's your cue you're handling debt with finesse.
These ratios aren't just abstract algebra; they're the mile markers on your financial freeway. If you're ready to rev up your ratio game, LMWF is in the pit stop waiting. We've got self-service tools to help you develop your financial plan. No jargon, no fluff – just straight-up financial savvy waiting for you at letsmakewealthfair.com. Start your engines, and let's race towards financial health.
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