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3 Basic financial fitness markers plus 2 for 5. :)

January 5th, 2006 at 05:38 pm

These were interesting and I wanted to share.
After developing my financial goals for 2006, I reworked my net worth and had taken it for granted the formulas I use to assess my financial fitness.
Perhaps someone else may find them useful:

The markers involve the following:

1) Emergency Reserve: equals immediate liabilities minus liquid assets and should equal half of net annual income

2) Debt-load Ratio: equals total liabilities divided by total assets and should not be over 35%

3) Progress toward retirement: equals net worth divided by annual income and should equal 20x annual income

I've used these guidelines for years, but cannot remember where I first found them to attribute the source accurately. Perhaps bankrate.com? Apologies. As the authors in "All Your Worth" have said, it used to be that one Couldn't spend more than they were able on necessities because of guidelines that had previously been upheld by banking and credit institutions.
My response to this is that people should then apply those "old" guidelines to themselves rather than relying on someone else to do it for them and then they'll greatly reduce current and future financial woes.
It's not always about being frugal.

Two last BONUS guidelines: 4) TOTAL debt (not including mortgage, but definitely including equity loans) should not equal more than 36% of gross monthly income and 5) housing should not be over 28% of gross income

This needs to be a private blog for me, so I've tried to be more discreet in my entries on the personal front compared to my last 5 months worth of entries (which I've deleted). And professionally, I wouldn't want too much information out in the open, either. On the other hand, I truly enjoy reading financial publications and sharing information learned with others, so I will continue posting a journal, just not quite as personal as I'd started out.

My first journal helped, though, and I'm in much more control of my money. It's a great feeling to see progress.

Happy New Year!
Jorge

1 Responses to “3 Basic financial fitness markers plus 2 for 5. :)”

  1. Just whant to say HI! I love this place! Says:

    Just whant to say HI! I love this place!

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