[E15] Pulse Check! 7 Personal Finance Formulas & Ratios to See Where You Stand

<p><strong>50-30-20 Budgeting Ratio</strong></p><p>20% Savings (cash savings, investments, retirement)</p><p>30% Wants (entertainment, eating out, travel, etc.)</p><p>50% Needs (housing, food, bills etc.)</p><p><strong>6X Month Emergency Fund Ratio</strong></p><p>Strip your budget down to basic expenses (What does it take to survive? Food, shelter, transportation, insurance, minimum debt payments, etc.) </p><p><i>Multiply this by 6</i>. (If your basic expenses are $4k, you need $24k)</p><p>This is how much you need in an emergency fund to be reasonably secure. </p><p>If you’re a dual-income household, you can probably get away with 3 to 4 months ($12k to $16k on $4k/mo expenses)</p><p><strong>Targeted Net Worth Ratio </strong></p><p><i>Age  X (Pretax Income / 10)</i></p><p>Don’t get too hung up on this ratio, because it can be intimidating. However, it’s a good figure to keep in mind. It can take you well into your 30s or 40s to finally meet/surpass the recommended threshold, but keep it in sight. (That’s when income starts to increase dramatically and student loans start to slide off.)</p><p><strong>10X Ratio for Life Insurance</strong></p><p><i>Take your income and multiply it by 10. This is how much term life insurance you need.</i></p><p>If your income is $50k/mo, that means $500k in life insurance. </p><p>If your income is $100k/mo, that means $1 million in life insurance.</p><p>This ratio is designed to allow for 4% annual withdrawals – i.e. roughly 40% of your annual salary each year. (Invested properly, this means your life insurance ‘nest egg’ will actually get bigger each year.)</p><p>(Quick note: If you’re single and have no kids or dependents, you don’t need to follow this ratio. Even if you’re married with no kids, you probably don’t need to worry about a massive life insurance policy, in my opinion….)</p><p><strong>Mortgage Ratio</strong></p><p><i>2.5 X Primary Income = Maximum Mortgage Balance</i></p><p>If you make $100k per year, this means your maximum mortgage balance should be $250k. </p><p>Thi