Ratios are very common in our daily lives and one such common ratio is like Soccer Players who are generally evaluated by their goals to games ratio. Therefore in Financial Planning, there’s such ratios available to help you get a better understanding of your current Financial Health.
Before getting these ratios, there are a few preparations and understandings needed like:
– Liquid Assets – You need to know how much Cash and similar to cash resources that you can easily converted to cash typically within one year. Such items are like your savings account and fixed deposits.
– Monthly Expenses – You need to know how much you spend every month. If you are able to get the details very near to 100% of the actual expenses then that would be good and would definitely help to getting a more accurate result
– Net Worth – This is obtained by using the difference between your Total Assets and Total Liabilities. Total Assets usually consist of your Liquid Assets, Investment Assets (shares and Unit Trusts) and Personal Use Assets (like you Car and Home). Total Liabilities would include your Short-Term Obligations (Credit Cards), Investment Loans, Loans to Purchase Personal Assets (like Car Loan, Home Mortgage). Once you have these information ready, you will get your Net Worth