TEN ESSENTIAL RATIOS FOR YOUR FINANCIAL PLANNING
(PART 5 OF 5)
10. RETIREMENT PLANNING RATIO (RPR)
- It should be the most important financial goal for any investor.
- You can get a loan for all other goals except retirement.
- RPR = 10% of your gross income
- At least 10% of your gross income should go into retirement savings.
- As income rises, so should your savings for retirement.
TIPS FOR TRACKING YOUR FINANCIAL RATIOS
- Has your net worth grown more than the inflation rate?
- It should be more.
- What is your asset to liability ratio (SOLVR or ALR)?
- It should be > 1 always.
- What are your liabilities?
- Minimise credit card rollovers and auto loans.
- Loans taken to buy appreciating assets are considered good debts.
- What is your liquid assets %age?
- Non-liquid assets include real estate, jewellery, and works of art.
- Liquid assets are bank accounts and stocks which yield cash easily.
- What is your savings to income ratio (SR)?
- It should not include your home.
- What is your savings rate?
- Aim at 10% minimum of your carry-home pay.
- What is the performance of your investments?
- Measure the performance of each investment, comparing it to its appropriate benchmark, for reviewing / changing your portfolio.