1341- HEALTH CHECK-UP Tools to measure your financial wellbeing
Like medical tests, these simple ratios can help prevent a problem, or detect it before it gets too tough to fix
Madhu T | TNN (Times of India, 15 April'2008)
_______________________ONCE you cross your mid-30s, your doctor will start prodding you to go for routine medical tests, just to be on the safe side. As you inch closer to those euphemistically called “advancing years”, health check-ups increasingly become a part of your life. However, when it comes to financial health, most of us have no idea how to run a check. Unfortunately, most of us also don't have a financial doctor who can help us with the job. That is why we asked some advisors what they would recommend as the financial equivalent of a health checkup, to determine the financial health of an individual —a few easy-to-answer queries that can either reassure us or our financial well being, or help diagnose problems early on.
“Yes, you can find out about your financial health by answering a few questions yourself. We call them ratios, but they are essentially questions which an individual can answer easily,” says Gaurav Mashruwala, a certified financial planner. “However, before starting the ratio analysis, one must have a family budget in place. One should also be ready with a list of assets and liabilities.”
 The next question is: how much do you save from your salary? This one is easy to answer. What it yields is the savings ratio, which would give you a rough idea of whether you’re saving enough for your future needs. According to Mashruwala, although a 10% savings ratio is considered good in the US, it’s not enough in India. Here, if your savings ratio is 30-40%, you are doing fine. The ratio, say financial advisors, has become very important for the new generation of wage earners, who tend to confuse financial wellbeing with higher salaries. You may be earning a lot, but you’re heading for trouble if you aren’t saving enough.
 The next step is to find out how much of your income is used up to pay off any loans that you may have taken for various purposes. More people are falling into the debt trap these days without even realising it, because banks have been wooing them like never before. Mashruwala says that with a housing loan, a debt service ratio of 35% is considered healthy. He also says if the debt doesn’t include a housing loan, you shouldn’t need more than 15% of your income to repay loans. Jhaveri underscores the importance of also making sure you have enough insurance cover to take care of your liabilities.
A solvency ratio of 50% is considered healthy by financial advisers. In other words, your liabilities shouldn't be more than 50% of your total assets.