TEN ESSENTIAL RATIOS FOR YOUR FINANCIAL PLANNING
(PART 4 OF 5)
7. INSURANCE MULTIPLE RATIO (IMR)
- It measures whether you have sufficient life insurance cover.
- IMR = (Life insurance cover – outstanding loans) / Your annual income
- It is advisable to have an insurance cover multiple of at least 6.
- This should be after accounting for the outstanding loans.
8. CARD ROLLOVER RATIO (CRR)
- A credit card allows you to roll over the balance if you are facing a cash crunch.
- But this spells trouble if you make a habit of it.
- If you roll over your credit card balance more than 1-2 times a year, it means you are living beyond your means.
9. EQUITY EXPOSURE RATIO (EER)
- It measures how much you should invest in equities.
- EER = 100 – your age
- The ability to take risks differs across individuals but it should gradually come down as you grow older.