How stable is your financial foundation?

Ask yourself: How many months of expenses do you have in instantly accessible form — savings account or liquid mutual fund? What percentage of your monthly income goes to EMIs? What is your total debt vs. total assets?

You can't build an investment portfolio on a shaky foundation. Before optimising returns, you need to know whether your financial base is stable enough to hold investments through volatility without being forced to sell.

Seven ratios tell you this systematically — the same ones used by certified financial planners across India (NISM Series X-A/B curriculum).

What these ratios are — and what they are not. They are a snapshot of your current financial position. They do not project future income changes, future expense growth (children, parents, medical, lifestyle), future market returns, or future life events (job loss, business exit, inheritance). Treat them as the starting step of a planning conversation, not the conclusion. Healthy ratios today do not guarantee a funded retirement; weak ratios today are not destiny. The required-SIP calculation in the next section, the goal sub-portfolios further down, and the macro-context module all extend this static view into a forward-looking plan.

Liquidity Ratio (Liquid Assets ÷ Monthly Expenses) — target: 3–6 months. Below 3, a single emergency forces you to sell investments at the worst moment. The correct instrument for this buffer: liquid mutual fund, not savings account (better post-tax yield at equal liquidity).

Savings-to-Income Ratio (Total Savings ÷ Annual Income) — target: growing with age. A 35-year-old with 2× is behind schedule. A 45-year-old with 10× is well-positioned. Why does the target keep moving up as income grows — isn't earning more "punished"? No. The ratio assumes current spending tracks current income (most households spend 50–80% of post-tax earnings; lifestyle scales with earnings). Retirement spending then tracks working-life spending, which tracks working-life income. To replace that lifestyle for a 25–30 year retirement you need ~15–20× pre-retirement income as corpus, regardless of whether that income is ₹15 lakh or ₹2 crore. The ratio is what's apples-to-apples; the rupee amount of course scales. The corollary: someone who deliberately lives on a small fraction of their income (FIRE-style frugality) can aim lower, because their retirement spending will track their actual spending, not their income.

Leverage Ratio (Total Liabilities ÷ Total Assets) — target: below 30%. High leverage amplifies both gains and losses, and can force asset sales at bad times.

Debt Servicing Ratio (Monthly EMIs ÷ Monthly Income) — target: below 30%. Above 50%, you have very little surplus for SIPs. Prepaying high-cost debt (personal loans, credit cards) often beats incremental investing.

Expense Coverage Ratio¹ (Monthly Expenses ÷ Monthly Income) — the savings rate is its complement. Your savings rate in the early years matters far more than your fund selection.