Your Money Ratios – 8 Simple Tools for Financial Security

by Ryan Guina

I receive several book review requests each week, and I decline most of them – with a newborn, a full time job, and a small business, I simply don’t have the time to sit down and read many books. But I received the press release and advance copy of Your Money Ratios and it struck me as a good financial book to read. I am glad I did.

Your Money Ratios doesn’t just feature your typical “spend less than you earn” advice. It gives readers a series of tools (easy to compute ratios) to help people manage income, debt, savings, investments, insurance and other money management topics for every stage of their life.

Your Money Ratios – 8 Simple Tools for Financial Security

Your Money Ratios has one core concept – to transform people from the mindset of being a laborer to a capitalist. Now that doesn’t mean the author recommends you drop everything and become an entrepreneur – far from it. The target audience is primarily for people who are in the traditional workforce and are looking to increase their wealth and overall financial security. The main idea is to change your mindset from working for money to getting your money working for you by investing and protecting your assets.

Your Money Ratios is broken into 8 main sections, covering topics from income, to savings, to debt, to insurance. With each segment of the book, the author suggests you ask yourself a question:  “Will this financial decision help move me from being a laborer to being a capitalist?”

The 8 Money Ratios

  1. Capital to Income Ratio. Identifies how much capital (savings) you should have at your age to help you stay on track for retirement.
  2. Savings Ratio. Identifies how much you should be saving each year so that you can reach your desired Capital to Income Ratio each year.
  3. Mortgage to Income Ratio. Identifies how much mortgage debt you could consider incurring and still leave enough room in the monthly budget to meet your Savings Ratio.
  4. Education to Average Earnings Ratio. Identifies how much debt you could reasonably incur to obtain a college or advanced degree. Also applies to parents who are thinking of taking on debt to educate their children.
  5. Investment Ratio. Helps you understand how to grow and protect the capital you have accumulated.
  6. Disability Insurance Ratio. Helps you understand how much disability insurance you need at each age.
  7. Life Insurance Ratio. Helps you understand how much life insurance you need at each age.
  8. Long Term Care Ratio. Helps you understand whether you need long term care insurance, and if so, how much.

Applying Your Money Ratios

The one rule of thumb about rules of thumb is that one-size-doesn’t-always-fit-all. These ratios are created to be flexible based on some situations, but there may be factors the ratios don’t consider. But in my opinion, the point is to get your thinking about the concepts in each section, then using these principles to apply them to your situation. This book will only be as effective as you make it.

For example, many of the ratios depend on hard numbers – savings goals, retirement goals, etc. Without having a firm target number, you can’t apply the ratio to track your progress. The value from this book, and any other book, comes from not from reading and enjoying the book, but from applying the principles to your situation.

About Charles J. Farrell

Charles J. Ferrell is an investment adviser, author and columnist for the “Retirement Roadmap” column for the CBS Moneywatch site. You can visit his website at  The website features bonus material, including online calculators and reports based on the formulas found in Your Money Ratios. These bonus features are only available with a secret code found in the book.

My thoughts on Your Money Ratios

Your Money Ratios is a thought provoking book on several levels, and just plain common sense on other levels. Like most books there are sections that will apply to your more than other sections, and parts you will likely disagree with. The point is not whether this book can act as an exact blueprint for your financial life (most books cannot), but whether or not this book can help you improve your financial situation and better prepare for life’s emergencies and contingencies. These are areas in which Your Money Ratios excels. Should you buy it? I’m a big fan of using the library, but applying the principles in this book take time. If you decide to follow the ratios in this book, then you will want to keep a copy on hand as reference.

Published or updated May 18, 2011.
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{ 5 comments… read them below or add one }

1 Lisa Munley

Ryan, excellent review! I’m so glad you enjoyed the book. Thanks so much for all the time you put into reading and reviewing Your Money Ratios. It is greatly appreciated.


2 Ryan

You’re welcome, Lisa. Thanks for sending the copy. 🙂


3 Jennifer

I just bought this book and love it already. I am on Chapter 4 right now. It is very easy to understand. I just hope the author is right about Social Security (Chapter 3). I am 32 and from everything else I have heard about Social Security I don’t expect it to be available when I retire.


4 Tax Guy

The concept of ratio’s has been around in the financial planning profession for years. Here in Canada, it is a little more prevalent but still not widely used by the general public. Banks here do use 2 key ratios to determine the amount of mortgage you can afford. They also apply a general rule of thumb (3.5x annual gross income) to calculate the maximum mortgage someone can afford. Bear in mind interest on the mortgage is not deductible here, so the maximums are lower than in the US.


5 Ryan

Tax Guy, I agree, the concept of ratios isn’t new. You can do a Google search for “how much life insurance to buy” and you will probably receive dozens of sites listing different ratios – 10x annual salary, 15x annual salary, and some that are more complex. The same thing applies to retirement planning and other scenarios.

This book applies ratios to many situations and is designed to help people more easily plan for their financial future. As I mentioned in the review, some of these concepts are unique, and some are plain common sense. As a tool, this book works well and can help some people make better sense of their financial situation.

Lenders in the US have similar formulas to determine how much credit they will extend (though I think they are a little looser with their purse strings!). Debt to income ratio is the one of the most common indicators used in that situation, but most lenders take into account other factors as well.


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