Have you ever felt like your net worth is that over-achieving cousin at family gatherings? It gets all the attention, but deep down, you know there’s more to the story.
To get a full picture of your financial health, you might want to step out of net worth’s shadow for a bit and look into some other interesting metrics.
1. Debt to Savings Ratio:
Imagine your savings and your debt are on opposite ends of a seesaw. Ideally, you’d want your savings to be the heavier one, right? The Debt to Savings Ratio is all about that balance. It showcases how much debt you’re carrying in comparison to your savings.
To calculate it, just divide your total debt by your total savings. The lower the number, the better.
If you find yourself with a high ratio, it might be a signal to reevaluate your spending and saving habits.
2. Liquidity Ratio:
Now, let’s talk about cash – not the total amount, but how quickly you can get to it in times of need. Your Liquidity Ratio gives you a sense of that.
To figure it out, add up all your liquid assets (like your checking account balance) and divide it by your monthly expenses. If the result is close to or greater than six, you’re doing great! It means you’ve got around six months of expenses readily available.
Anything less, and you might want to consider bolstering that emergency fund.
3. Giving Capacity:
Philanthropy isn’t just for the millionaires. Your Giving Capacity is a testament to how much you’re able to contribute to causes close to your heart.
To gauge it, determine the percentage of your income or assets that you’re devoting to charitable actions.
It’s a personal measure, so there’s no “ideal” number, but it’s a great way to align your financial habits with your values.
4. Joy per Dollar:
Some expenses bring a smile to your face, while others… not so much.
To get a handle on your Joy per Dollar, evaluate your recent purchases and rate each on a scale of 1 to 10 based on the happiness they brought you. Then, divide the cost of the item by its happiness score.
The lower the result, the more joy you received for each dollar spent. It’s a fun and enlightening exercise that might just reshape your spending habits!
5. Investment Diversification Score:
Think of your investments as an ensemble cast in a movie. You wouldn’t want the same actor playing every role, right? Similarly, your investments should be diverse.
To check your Investment Diversification Score, take stock of where your investments lie. Are they all in stocks, or is there a mix of bonds, real estate, and maybe even some precious metals?
There isn’t a strict formula here, but a good rule of thumb is to not have all your eggs in one basket.
Life, as we know, isn’t just black and white. It’s a spectrum of experiences and moments.
Similarly, our financial health isn’t defined by a single number.
By exploring these additional metrics, you’ll gain a more colorful and comprehensive view of your financial landscape. Happy calculating!
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