Ratio Analysis or Financial checkup

If you want to improve your finances, there’s nothing like getting a qualified, second opinion to point out what you are doing right and where you need work.  To accomplish this task, I have developed a worksheet that inspects ALL the key areas of your personal finances.  Completing this exercise will provide a 32 POINT Check-Up which will let you know where you’re on the right path, and what needs improvement.

I personally completed this worksheet each year for many years, until I decided my only financial interest lay in paying down my debt.  I believed I had accumulated enough, my kids had all graduated from college, my finances were in great shape, but my cash flow could stand to be improved.  Paying off debt became my goal.

To download the worksheet, please click here.  The first page prompts you to enter data required to make certain calculations.  These include your income, total assets, debts, and the amount you saved in the last year, among others.  Page two simply asks you to reply yes/no to a series of interesting questions.  The key column is the column furthest to the right.  Here you are supposed to grade yourself.  Wherever you answered No to a question on page 2, give yourself a “D”.  You will need to improve each of the areas where you didn’t earn an “A”

Beginning on page 3, through the end of the worksheet, you will need to determine the stage of life in which you find yourself.  For the purpose of simplicity, I have created three stages: the early career is up to age 35, the middle career is the period between 35 and 60, and retirement years are over 60.

After you have established your stage of life, we will move on to ?  (Seems like you need something here as a transition—an introduction to ratios which haven’t been mentioned yet?.)  Let me help you complete the first ratio, which is your Residence Market Value as a percent of total value.  This ratio is intended to help determine whether too many of your assets are tied up in non-investable assets.  To calculate it, add the market value of your residence to any other lifestyle real estate such as a vacation home or time shares.  Then, divide this number by your total assets. Let’s assume you are in the Retirement Years.  This ratio should be around 20% - 30%.  Supposed you have a house worth $700,000 and your total assets are $1,500,000 (your home plus, say, your 401 k worth $800,000). The ratio would come out to be 47%, which means that 47% of your total assets are tied up in your house, and you are about to retire or are retired.  This ratio suggests you have too much of a house. You might want to consider selling it and moving to a less expensive home so you can free up more money to invest—and to generate income during your retirement.

As a word of caution, the ratios recommended in the worksheets are rules of thumb I have personally estimated.  Therefore, they should be modified to reflect each person’s unique financial situation. Don’t take them as written in stone but instead as a general guide of what may be reasonable and prudent.

For more information on how these worksheets should be completed, please call Professor Ulivi at 714-771-6000 or email him at professor@ulivi.com