Saturday, July 31, 2010

How Much do You Worth? (Part 3)

Do you have any idea how much of your income has been used for loan repayment? You will be able to by calculating debt servicing ratio by dividing your loan repayment with your net take home income. You should keep your debt servicing ratio below 35% of your net take home income so that you have enough cash to meet other end needs.



Life insurance is a very important protection tool. But, in view of limited financial resources you have, it is not advisable to have large allocation of your net take home income on this. As a rule of thumb, try to maintain your life insurance service ratio at maximum 10% of your net income.

Last, but not least, the Savings Ratio. We have been talking about pay yourself first. So, how much do you actually pay yourself. You will have some idea by dividing your savings over net income. The optimum ratio is subject to individual condition. But, as a general rule, a minimum of 10% shall be maintained.

There are, of course, many others ratio you can get to know more in depth about your financial health. Those listed in my post, which I believe, should be able to give you a general picture of your financial condition. After calculating all these ratios, what you need to do is to find and attack the root cause that lead you to unfavorable ratio.

Happy calculating.

6 comments:

  1. To make an idea about the income you have helped me a lot. I am also engaged in different life insurance so as to secure my future.

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  2. Insurance planning is also an important part of financial planning process. Most importantly, we should seek for suitable insurance to meet our end needs.

    I do share some ideas on insurance at Insurance Planning category in my blog. Do share your comment, if any.

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  3. To make money from insurance i don't think it's suitable. Insurance to me is mend for protection.

    Everybody needs an insurance policy. That is a must.

    Just my 2 cents.

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  4. Insurance planning is what prop baby is need Of time and need of everyone, specially when your parents are dependent on you, Health issuance and car insurances are probably what people preferred these days.

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  5. @ kampunginvestor: You are absolutely right. Never think of return (or refund) from insurance. Insurance should be treated as a protection tool but not an investment tool. I always treat my premium paid as expenses not investment. Therefore, the main rule of thumb is to seek for maximum coverage with lowest premium possible.

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  6. I totally agreed on LSY and Kampunginvestor's point of view. I never buy the idea from any insurance agents that are trying to promote protection cum saving plan. To be, Insurance is a MUST, but is only a must for protection. Come to investment, there really are many good investment channel one can go for.

    ReplyDelete

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