These are the ratios certified financial planners use to assess a client's financial foundation — drawn directly from the NISM curriculum. [6] [3]
Formula: Liquid Assets ÷ Monthly Expenses
Target: 3–6 months
Why it matters: Below 3×, an emergency forces you to sell investments at the worst possible time. Park this buffer in a liquid mutual fund, not a savings account — same liquidity, better post-tax yield. [3]
Formula: Total Savings ÷ Annual Income
Target: Rising with age
Why it matters: A 35-year-old at 2× is behind schedule. A 45-year-old at 10× is well-positioned. Your Savings Rate — definition">savings rate in early years matters far more than fund selection. [3]
Formula: Total Liabilities ÷ Total Assets
Target: Below 30%
Why it matters: High leverage amplifies losses and can force asset sales at the worst moments. [3]
Formula: Monthly EMIs ÷ Monthly Income
Target: Below 30%
Why it matters: Above 50%, there is very little surplus for SIPs. Prepaying high-cost debt (personal loans, credit cards) often beats incremental investing. [3]
Formula: Monthly Expenses ÷ Monthly Income
Target: As low as sustainable
Why it matters: Its complement is your savings rate — the single most controllable lever in wealth-building. [3]
Formula: Net Worth ÷ Annual Income
Target: Grows steadily; rule of thumb is roughly (Age × Income)/10
Why it matters: Tracks whether you are building wealth relative to what you earn. Stagnant net worth at rising income signals lifestyle Inflation — definition">inflation or poor allocation. [6]
Formula: Net Worth ÷ Total Assets
Target: Above 50% for most working-age households
Why it matters: Tells you what fraction of your assets you actually own outright vs. owe to creditors. A low solvency ratio means your balance sheet is more fragile than it looks. [6]
These ratios are inputs before investing, not afterthoughts.
Ratios → Goals → Allocation → Fund Selection
Most investors start at the end — picking funds before checking whether their foundation can hold through a 30–40% Drawdown — definition">drawdown. [1]
Apply this → Compute all seven at Financial Planner → Ratio Analysis. The output will tell you how much risk your financial position can actually bear.