Book Review: Your Money Ratios – 8 Simple Tools For Financial Security

At first glance, I thought that “Your Money Ratios – 8 Simple Tools For Financial Security” by Charles Farrell would be too simplistic. But, I learned a few things from the book and reaffirmed some financial planning wisdom and methods thanks to the book which focuses on beginners and relies heavily on rules of thumb to ensure that you are on track for financial security and prosperity.

For Beginners. “Your Money Ratios – 8 Simple Tools For Financial Security” provides a baseline to help people learn to save, invest, and manage your financial life. The book also provides a way to get your life back in order. “Your Money Ratios” focuses on eight simple financial ratios based on your household income, debt, age, etc. I have listed them all below and what they will help you calculate.

Your Money Ratios:

• Capital To Income Ratio – How much should you have at certain ages in your nest egg to retire at age 65?
• Savings Ratio – Are you saving enough money every month?
• Mortgage To Income Ratio – Are you borrowing more money than you can afford?
• Education Debt Ratio – Are you borrowing too much money relative to the amount of money you are going to make in your new career?
• Investment Ratio – Do you have a safe enough split in your asset allocations between stocks and bonds?
• Disability Insurance Ratio – Do you have enough disability insurance relative to your income?
• Life Insurance Ratio – Do you have enough life insurance?
• Long Term Care Insurance Ratio – Do you have enough long term care insurance?

For More Experienced Investors. I liked how the book gave you a quick look or snapshot of how you are doing and whether or not you are on track. In the Army, Soldiers call it an azimuth check named after when Soldiers look down at their compass to ensure that they are still heading in the correct direction out in the woods. “Your Money Ratios – 8 Simple Tools For Financial Security” provides an excellent azimuth check to your personal finances. I will not spoil all of the ratios’ calculations for you. You should definitely check out the book for details on all of them. But, I wanted to share with you how the Capital To Income Ratio reaffirmed that I was on track to save for retirement.

For example, Farrell uses the rule of thumb in the calculation of the Capital To Income Ratio that a 25 year-old income earner should have 10% of his or her annual income saved for retirement. A 30 year-old should have 60% of his annual income saved in retirement accounts, and a 35 year-old should have 140% of his annual income saved. So, for example, if you and your wife earned a combined income of $100,000 per year when you are 35 years-old, the rule of thumb and Capital To Income Ratio suggests that you should have $140,000 saved in your 401k, Roth IRAs, and other investments by that age