7 Ratios for a Good Financial Balance


1. Basic Liquidity Ratio

Indicates how long you can live on your current cash savings. The ideal amount of cash savings to have on hand is 3 – 6 months’ worth of your monthly expenditure.

Formula = Cash or Cash Equivalent ÷ Monthly Expenses x 100%


2. Liquid Assets to Net worth Ratio

Indicates whether you’re cash or asset rich. While it is good to diversify your asset classes, you should have at least 15% of your net worth in cash.

Formula = Cash or Cash Equivalent ÷ Monthly Expenses x 100%


3. Savings to Gross Income Ratio

Measures your savings in proportion to your income excluding CPF and before income tax. Ideally, you should be saving at least 10% of your income.

Formula = Savings ÷ Gross Income x 100%


4. Debt to Asset Ratio 

This shows you the proportion of what you owe versus what you own. A healthy and manageable debt should be no more than 50% of your total assets.

Formula = Total Debt ÷ Total Assets x 100%


5. Debt Service Ratio

Measures the amount of personal debt against personal income. Less than 35% of your annual income should be used to service debt.

Formula = Total Annual Loan Repayment ÷ Annual Take Home Income x 100%


6. Net Investment Asset to Net worth Ratio 

If more than 50% of your net worth is invested in fixed deposits, unit trusts, property and even certain life insurances, it means you are well invested.

Formula = Total Invested Assets ÷ Net Worth x 100%


7. Solvency Ratio

This gauges your likelihood of bankruptcy. Total Net Worth must be net of debt. The higher the percentage, the lesser the likelihood of insolvency.

Formula = Total Net Worth ÷ Total Assets x 100%