How Do You Measure Your Financial Success?

You do not have to be a billionaire to consider yourself to be financially successful. If you have a roof over your head, food on your plate, loving family and friends, you are already in a good class.

 To measure financial success, use specific personal financial ratios and qualitative factors to evaluate your financial health.

 These benchmarks can help you develop better financial habits in savings, spending, retirement, investing, and debt payoffs.

Limitations of Financial Metrics

Financial metrics have some limitations. For example, debt-to-income will be different for people of different ages. For those who have unpredictable income, ratios may be difficult to assess without normalizing for volatility.

Monetary assets are liquid investments. The average household can include cash, money markets, savings, and checking accounts. Liquidity Ratio = Monetary Assets/ Monthly Expenses

Liquidity Ratio

An emergency fund ratio works ample enough to support you through these unknowns for a targeted timeframe. Emergency Funds Ratio= 6*Monthly Expenses

Emergency Fund Ratio

1. Savings-To-Income Ratio 2. Debt-To-Income Ratio 3. Savings Rate-To-Income Ratio 4. Personal Cost of Debt

These Ratios Are Linked To Our Age

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