Wealth and prosperity aren’t really about how much you make, but about how well you use what you have. If you offset a high-income job with wild spending habits, you’ll be in worse financial shape than someone who makes half as much as you but saves and lives within their means.
The Frugal Toad pinpoints financial ratios to shoot for:
* Savings ratio. It’s the relationship between your after-tax income and your cash surplus after expenses. If you’re able to sock away between 10 and 20 percent of your disposable income, you’re doing far better than the American average of 4.5 percent.
* Housing cost ratio. Take your total monthly mortgage payment, including all taxes and fees, and divide the number by your pre-tax monthly income. If you’re spending more than 28 percent of your money to keep a roof over your head, you can consider yourself “house poor.”
* Consumer debt ratio. Compare the amount you spend each month paying off debt to your monthly after-tax income. If you’re spending more than 20 percent of your take-home pay on debt, you are likely struggling.
Check out the source link for some other key ratios, as well as advice about how to shape up your finances.
Personal Financial Ratios Everyone Should Know [The Frugal Toad]