18 Personal Finance Ratios You Should Know

Personal financial ratios can give you a picture of your proper financial health and progress relative to your goals.

Your personal financial statements, specifically net worth and the monthly budget, use your financial data to describe an individual’s or household’s financial condition.

Your net worth statement and monthly budget statement are the essential financial statements to create and update. As such, they hold the key to your current financial life.

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1. Liquidity Ratio

Liquidity refers to your ability to quickly convert assets into cash with little to no loss of principal.

2. Emergency Fund Ratio

The liquidity ratio is linked very near to the emergency funds. You should use this emergency cushion for unforeseen events.

3. Net Worth Ratio

Your balance statement measures your net wealth at a point in time. As you add to your assets, hopefully outpacing your liabilities, you will be getting wealthier.

4. Targeted Net Worth Ratio

The high savers do a better job of maintaining and building your wealth. They use age as a factor in the calculation, as some other ratios do.

5. The Current Ratio

The current ratio is the best benchmark to determine liquidity in your household. It measures the household’s ability to repay a short-term debt in an emergency.

6. Debt-to-Asset Ratio

The Debt-to-asset ratio is a standard ratio for companies. This ratio focuses on the borrowing ability of the individual or household.

These financial ratios are useful as a starting point to understanding your financial health. They do not take the place of a sound financial plan.