# Tracking Our Ratios

I’ve always had (more than a little) fun building plans in Excel. Sometimes it’s taken up enough time to be a distraction from other things, but it has helped understand what’s going on with our finances. I track things with enough detail to run a business, and I’ve even noticed a few areas where I track our personal finances better than in my business.

Recently I’ve started looking at how much further we can push our savings rates. Blogs such as Free at 33, Mr Money Mustache, and Financial Samurai are all great inspirations to target a savings rate of 50-70%. I think this is usually based on net income since some people (especially FS) would have trouble accessing 70% of their gross income to begin with. It also makes more sense to do this since net income is what you actually get to work with. The taxes on top of that are just a cost of doing business.

So like any good business I’ve established some key ratios and started tracking them in our spreadsheet. This gives us a way to see if we’re improving, and to compare to others who are doing well to see where we could improve. Here are a few key ratios we have right now based on regular monthly amounts:

- Investment savings (actual investment amounts and mortgage principal payments, all of which reduce our future income needs): 44.6% of net income
- Total savings (including things such as saving for the next vehicle we will need, and the anticipated monthly increase in our general cash account): 57.8% of net income
- Core living expenses (what we would need each month to live a normal life without mortgage payments or extras such as vacations): 29.8% of net income
- Investment savings / core living expenses (what we invest compared to what we spend on ordinary living expenses): 149.6%
- Housing costs / gross income (similar to the GDS used to qualify for a mortgage): 17.4%

In addition to those monthly stats, there are a few other things that help to track our rate of progress:

- Investment portfolio total value / mortgage balance (how close we are to having investments worth more than our loans): 24.3%
- Estimated investment income / core spending (how close we are to paying the bills without working or having a mortgage): 11.0%
- Net worth gain over the last year: 55.2%

Overall there are a lot of good things here. Our total savings (some of which is preparing for expenses in the coming year) are nearly twice what we would need to spend without a mortgage. The main long-term savings are 50% more than that spending which gets us ahead pretty quickly. I calculated recently that if you invest the same amount that you spend every month, you can expect to have your investments cover that spending in about 15-17 years. So with a higher investment amount that time should be shortened. Not by much though; with very short time-frames it’s hard to go faster since you don’t have enough time to get investment returns.

Our housing costs are about half the typical limit for getting a mortgage, which is a good way to stay conservative in an expensive market. We sold off most of our investment portfolio to boost our down payment when we bought the house last year since the timing was right and we wanted to start off with good equity. In the time since then we’ve rebuilt the portfolio to be a quarter of the outstanding loan value, which fits well with my current preference to invest at reasonable valuations instead of paying off a loan at less than 3% interest rates.

I may need to recalculate some of these at the end of each year since there are special events. For example this year we will likely end up with 4-5 substantial additions to our investment portfolio outside the regular amounts (and maybe an extra payment on the mortgage). Some of that comes from one-time income so it would increase the income side as well. Taking that all into account, the year-end investment savings as a percentage of net income could be 55% or more.

The big improvement I would like to make is in the first number. Having a monthly investment savings ratio of 50% of our net income would be nice just so we can keep up with all the top bloggers 🙂 The actual monthly increase could fit in well with our cashflow. Once we sort out a few recent one-time events we may be able to increase our monthly investments to reach that. Beyond that we could possibly increase it to 60%+ but that would require a higher income with most of it dedicated to investments. Maybe my passive income plans can help with that…

### 4 responses to “Tracking Our Ratios”

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- October 20, 2012 -
- December 1, 2012 -

55% Net Worth growth! Nice job.

I would like to hear about your ideas of increasing income with side hustles.

Congrats on the new baby this year. It gets harder to strive for more when others ( Wife and Kids ) have to suffer with you.

Such is the curse of being a thoughtful Dad.

Thanks Derek! I like MMM’s approach of making things more fun for the family and cheaper at the same time. His post about many costs of raising children being discretionary seems right on so far. It does limit your work time but there are plenty of ways to get around that.

My primary income is from what you could consider a side hustle (it’s just not on the side of anything). There’s a lot left to do there but I want to practice some other income-generating skills too! In my earlier post I gave a teaser about the 3 projects I’m working on right now for additional income.

They’re a good mix of different approaches and I hope to learn more from all of them and share details of their progress here. I have a feeling that once I practice some more marketing skills I can really reach a higher level in all areas. That’s one key skill to have, although if you only practice marketing you could easily get to the point described in Linda Resnick’s book where marketing things that other people control really isn’t making your life any easier.

I’m looking forward to seeing what you come up with to build alternative income, and hope to see more about that on your blog!