First-time investor in 2024? Conquer investing with 6 hidden ratios and rules
Benjamin Franklin says: "An investment in knowledge pays the best interest". It highlights the importance of gaining knowledge before you start something, whether your investments or anything else. Hence, if you are beginning your investing journey in 2024, you must understand some personal finance ratios and rules.
Let us discuss them. Before you start investing, you need to save money. The savings ratio measures the percentage of income you are saving.
It is calculated as follows: Savings Ratio = Savings / Gross Income Suppose your monthly income is Rs. 50,000, and you are saving Rs. 10,000.
In this case, your savings ratio will be 20%, which is a good ratio to start with. The higher the savings ratio, the better, as it helps you channel more money towards investments for fulfilling your financial goals. You can use the 50/30/20 budgeting method that allocates 20% of the monthly income towards savings and investments.
Once you get comfortable with this budgeting method, you can aim to increase the savings rate beyond 20%. As you allocate more money towards your financial goals, you will be able to achieve them faster and attain financial freedom. Action point for 2024: Aim for a savings ratio of 20% to start with, and take steps to increase it further over a period of time.
A lot of people have loans such as a home loan, vehicle loan, education loan, personal loan, credit card outstanding, etc. Some people have multiple loans running at the same time. The debt to income (DTI) ratio measures the percentage of income going towards paying loan EMIs.
It is calculated as follows: DTI = Monthly Debt Payment / Monthly Income Suppose your monthly income is Rs. 50,000, and you pay Rs. 15,000 towards loan EMI(s).
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