Saturday, April 3, 2010

Formulas to apply to your personal finance

I was at the Indigo bookstore in Langley today reading a personal finance book written by Charles J. Fahrell titled 'Your Money Ratio$'. Haven't purchased it yet as I am trying to save money. Some of the interesting formulas I learned just by flipping through the pages include the Mortgage-to-Income ratio (MIR) and the Capitol-to- Income ratio (CIR). From what I can remember, the MIR is 1.9 for me and its the amount of mortgage that I can comfortably stomach at my age given my income today. My calculation shows that I should have purchased a smaller house or that I should have purchased when I was in my early twenties because I am nowhere close to having the ideal mortgage balance. The CIR is 1.4 for me and this tells me the amount of RRSPs and group pension that I need to have already saved at my age and my current
income level. It tells me that I am below the ideal threshold and should increase my savings percentage to 12% or more. I love reading books like these. Using mathematics is a great way to incorporate personal finance statistics into the mix. It makes it easier for me to understand. I'll buy this book soon but until I have
more surplus in my net worth, I'll have to be content with drive-by readings.

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