Various individuals must continually address common financial ratios during their lifetime of wealth creation and preservation and subsequent generational transfer. This includes, but not limited to, multi-cross section and segmentation of income groups as well as demographics ranging from Millennials to Gen X to Baby Boomers. In addition, individuals who are considered mass affluent, high net worth and ultra high net worth.
Based on last 6-7 decades of wealth creation, the common financial ratios are as shown in below diagram. Starting with Basic Liquidity-to-Savings, various individuals must weekly, monthly, and annually strategize and plan how to best deal with these key ratios.
Specific attention must be on constantly focusing on improving the common financial ratios via key steps as summarized below:
- Minimize increasing financial obligations and mitigate resulting legal liabilities
- Cut spending and add extra disposable income into an emergency fund
- Debt reduction by prioritizing and selecting one debt-at-time and pay-off in a timely manner (short-term debt, medium-term debt, and long-term debt)
- Sell assets, as available, and use funds to pay-off the debt
- Refinance the debt at lower interest rates for low monthly payment
With prudent strategy, planning and execution, various individuals can properly and effectively deal with the common financial ratios.