Diagnostics for financial well being

Having just crossed the 35 yr milestone of my life, an article in The Times of India caught my attention today – “Diagnostic tools for your financial wellbeing”. A few takeaways from there & elsewhere on the topic :
Some questions you should be asking yourself –
  • Liquidity Ratio – do you have cash to cover at least 4 months’ expenses in case of an emergency?
  • Saving Ratio – how much do you save from your monthly income?
  • Debt Service Ratio or Debt Leverage – how much of your income is used up to pay for loans?
  • Solvency Ratio (liabilities / assets) – do you know how much you are worth?
  • Assets Productivity – what are your assets doing for you? Are they generating income?

Finally, a quick note on financial independence from Get Rich Slowly: The best books about money seem to have the same goal in mind: not wealth, not riches, but financial independence. According to Your Money or Your Life, which may be the very best of the financial books I’ve read, “financial independence is the experience of having enough — and then some”. More practically, financial independence occurs when your investment income (or “passive income”) exceeds your monthly expenses. Financial independence leads to psychological freedom.

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