RATIOS TO YOUR HELP!

The table above shows 5 countries in the EU that currently is facing fiscal and economic growth problem. Although the other EU sovereign nation heads of government  are trying to find a concrete solution to assist this badly governed countries, the sole responsibility should rest upon the shoulders of the affected 5 nations mentioned. This nations heads of government who have been accorded the trust and hope to lead and govern their citizens aspiration to see that the country they are dwelling in achieves continuous prosperity, thus peace and happiness is the only thing matters to them, is restored at all time.

Shoddily managed resources with back-to-back inferior managerial qualities and leadership skills dampened the financial health of those nations in relation. 

While running our own financial day-to-day matters is definitely cannot be compared to the mega-scale financial transactions of the nation, the concept is the same. Let's narrow down and observe our very own day-to-day money transactions. How many of us are seriously controlling their household financial transactions prudently? Remember that the heads of governments are people just like you and me too, and if their personal household financial transactions are not in correct perspective, how would they lead and manage such an enormous entity called Sovereign Nation?

In my previous blog articles, i mentioned about establishing a Cash Flow Statement (CFS) and Net Worth Statement (NWS). If you have started to organize your household financial matters based on this two statements, you should be able to push yourself to the next bar where you use ratios to track and control your household financial health. Below are some important ratios which you can use:

LIQUIDITY RATIO: Cash / Monthly Exp.

This ratio should be in the parameter between 3 to 6 months to consider to be healthy.

LIQUID ASSET : Cash / Net Worth.

The greater the figure, the better. (max 100%)

SOLVENCY RATIO: Net Worth / Total Asset.

The greater the figure, the better. (max 100%)

GEARING RATIO: Debt / Asset.

The lower the figure, the better (min 0.00)

SAVING RATIO: Annual Saving / Gross Income.

The greater, the better. (20% to 30% is considered healthy)

I believe that if every household practices managing their finances based on the above suggestion with integrity, responsibility and consistency, we will see the birth of future generation of knowledgeable honest leaders.