How to measure your financial security
By: Tim Bennett


In these testing times, it matters more than ever that we keep a watch on our financial wellbeing. So here I look at five ways of doing that.

Reasons to invest

Whilst many families are focused on financial survival right now, for others this lockdown presents an opportunity to think about long-term saving and investing. That’s because with fewer opportunities to spend money and stock markets down from their 2019 highs, it’s not a bad time to try to boost a family’s long-term lifetime savings. Remember, investing over time brings several key benefits.
Of these, security is a key one and that’s where I will focus the rest of this short article.
I want to sum up five ways of measuring it.

Net worth

This is, in effect, the total at the bottom of our personal balance sheet. It looks at the difference between what we own (assets) and what we owe (liabilities) with the difference being net worth.
It is important to check this regularly against long-term goals such as stopping full time work, clearing a mortgage, paying private school fees up front, or funding a second home.

Debt to income

This looks at the relationship between the debt we have and our ability to pay it. With interest rates falling, now is not a bad time to review whether we are on the best deals when it comes to mortgages, personal loans, credit cards and so on.

Rainy day cover

This is a simple test of how long we could survive if we lost our main income. In this climate, caution is wise so a fund of up to six months of our regular expenditure makes sense for a lot of people, albeit the actual amount is ultimately down to personal preference.

Independence ratio

This slightly fiddlier calculation looks at our ability to pay for our lifestyle out of unearned income. The higher it is the more independent we are in the sense that we are less dependent on an employer for our standard of living.
Here is a simplified example of how it works.

Financial stress level

This last one looks at how we feel about our finances and how often we are stressed by our situation. If the answers are “very stressed” and “very often” then it is important to look at ways to manage our finances to reduce stress.
In other words,
If you would like to discuss any of these areas further, please contact an Adviser or email me on [email protected]