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Ratio Definitions



The amount of money, in terms of percentage that a person is putting aside for the purposes of retirement.


This measures your current assets compared to your current liabilities. It answers the question of how well you can cover your liabilities with only the help of your present assets. 

A ratio higher than one is ideal. The higher the number the longer you can go in theory with no income.

Emergency Fund: 

Cash in savings / Expenses. This is similar to the current ratio except it only includes your cash in savings in determining how long you can meet your obligations without income. Your assets are not included in this ratio.

Capital to Income: Your net worth / your current income. How many years does your current net worth allow you to live off your current income if your income were to cease.

Capital to Income:  This is more important because it excludes non-liquid (or assets such as your home that may not be easily/quickly sold). It is also important to exclude particularly your primary residence because when this ratio become important you likely will not want to sell the property.

(Excluding residence)

Passive Income:  If the only income you had we passive (or interest from bank accounts, stock dividends, etc.) how much of your current expenses would this income cover?

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