The Investing for Beginners Podcast - Your Path to Financial Freedom

AAR21 - 5 Ratios to Understand Your Financial Situation

Oct 28, 2025
Guest
Dave Ahern
In this discussion, financial professional Dave Ahern returns to share insights on essential personal finance ratios. He and host Evan Raidt explore the significance of savings rates, emergency funds, and net investment ratios as guidelines for financial health. They caution against comparing your situation to others and emphasize the importance of budgeting responsibly. Dave also highlights the risks of revolving debt and 'buy now, pay later' schemes, and introduces the partner income ratio for couples to ensure fair financial management.
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INSIGHT

Ratios Are Self-Improvement Tools

  • Use ratios as personal guides, not absolute benchmarks tied to age or others' situations.
  • Focus on improving your own numbers over time instead of comparing to strangers online.
ADVICE

Automate A Realistic Savings Rate

  • Calculate your savings rate as monthly savings divided by monthly net income and aim to automate it.
  • Prioritize a stable, automated rate over one-off high months to make savings sustainable.
ADVICE

Keep Needs Below Half Your Income

  • Compute a needs ratio by dividing monthly needs by monthly net income and aim to keep it under 50%.
  • Include all essential payments (rent, utilities, car payments) for a complete picture of obligations.
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