Budgeting Tips For Families
Basic solvency ratio
Why it counts: Clarity and commitment. Authorities agree that before crunching the numbers, families need to scrutinize their financial wellness—and the best chance of success comes from having both mates on board.
This ratio signals your power to meet monthly expenses in case of any emergency or calamity. It’s calculated by dividing the near-term cash you have with your monthly expenses. Basic solvency ratio = Cash / Monthly expenses (this ratio isn’t mentioned in percentage). You are able to also call it as emergency or contingency preparation ratio. This ratio helps you prepare for unexpected troubles.
An illustration, a 30-year-old businessman whose wife had an emergency gall bladder surgery last year. In spite of the fact that they had enough insurance to take care of exactly such an event, due to a few administrative problems on the day of discharge, he was informed that he would have to pay in cash as the bill couldn’t be settled.
He had a hard time arranging the funds on an emergency fundament. He was fortunate to have good acquaintances and relatives who lent him the money. But not everyone have such great admirers or relatives to bail them out at such short notice. I’m sure no one wants to be in the same shoes.