Six checks that reveal
the truth about your
financial health.

The Savings Ratio measures what percentage of your gross annual income you are actively setting aside as savings or investments. It includes everything you put into FDs, RDs, SIPs, PPF, stocks, NPS, or any other wealth-building instrument — before spending on living expenses.

Two people both saving ₹5 lakh a year may be in very different financial positions. If one earns ₹15 lakh, their savings rate is 33% — excellent. If the other earns ₹50 lakh, their rate is just 10% — and they are spending ₹45 lakh annually, making them far harder to sustain in retirement. The savings rate tells you whether your lifestyle is scaled to your income, or running ahead of it.

Financial planners generally recommend saving at least 10% of gross income as the bare minimum, and 20% or more as the healthy target. India's household savings rate has historically been around 18–22% of GDP, but individual rates vary enormously. If you are under 35 with low liabilities, targeting 25–30% is achievable. If you have a young family and high EMIs, 10–15% may be realistic for now — with a plan to grow it.

Savings Ratio (%) = (Annual Savings and Investments ÷ Annual Gross Income) × 100. Use your total gross income — before tax, not take-home. Count every rupee you invest or save, including EPF contributions deducted from salary.

This ratio measures how much of your total wealth is readily accessible in a crisis. Liquid assets are those you can convert to cash within 48–72 hours without a significant loss — cash, savings accounts, liquid mutual funds, and short-duration FDs. Net worth excludes your primary home because a home has only notional value unless you actually plan to sell it.

Many Indians have high net worth on paper — property, ULIP policies, long-lock-in FDs, gold stored away — but very little they can actually access when an emergency strikes. If your daughter needs a medical procedure tomorrow, your ancestral property in Jaipur cannot help you. Liquidity is the difference between financial security and financial crisis, even when total wealth is substantial.

Your primary home serves two purposes — shelter and notional investment. Since you cannot sell it without displacing yourself, including it in net worth gives a misleading picture of what wealth is actually available to you. The ratio is designed to show real, usable financial strength. Investment properties you genuinely intend to sell or rent out can be included, but the house you live in should not be.

Liquid to Net Worth Ratio (%) = (Liquid Assets ÷ Net Worth excluding primary home) × 100. A result above 25% is healthy. Between 15–25% is a caution zone — you are not illiquid, but a large unexpected expense could strain you. Below 15% means most of your wealth is locked and you carry meaningful emergency risk.

The Debt to Assets Ratio shows what percentage of everything you own is actually borrowed. Total debt includes home loans, car loans, personal loans, credit card outstanding balances, and all other liabilities. Total assets includes everything that could theoretically be used to repay debt — property, investments, PF, gold, savings.

When more than half your assets are debt-funded, a single adverse event can push you into insolvency. If asset values fall by 10–15% (markets correct, property prices dip), your debt could exceed your assets, leaving you with negative net worth. Below 35% means you own most of what you have outright. Between 35–50% is a manageable zone with discipline. Above 50% is structurally risky and should be a priority to address.

Debt to Assets Ratio (%) = (Total Debt ÷ Total Assets) × 100. This is a balance sheet check. The lower this number, the more of your assets you truly own. Focus first on repaying high-interest consumer debt (personal loans, credit cards) before focusing on lower-rate home loans.

The Debt Service Ratio (also called the EMI-to-income ratio) measures what percentage of your take-home income is consumed by debt repayments every year. It is a cash flow check — unlike the Debt to Assets ratio which measures your balance sheet, this measures your monthly breathing room. Banks use a version of this ratio to decide how much loan to give you; financial planners use it to decide how healthy your loan burden is.

Banks want to maximize the loan they can offer you. A 50% EMI-to-income ratio is the legal limit most banks apply, but at 50%, you have almost nothing left after basic expenses. Financial planners recommend 35% as the upper limit because it leaves enough room for savings, insurance, education costs, and unexpected expenses. The remaining 65% of income then covers living costs, savings, and a buffer — a much more sustainable position.

Debt Service Ratio (%) = (Annual EMI and Debt Repayments ÷ Annual Net Income) × 100. Use net income — what arrives in your bank account after tax, not gross salary. Multiply your total monthly EMIs by 12 to get the annual figure. A result below 20% is healthy, 20–35% is moderate but manageable, and above 35% should be treated as a priority problem to solve.

The Basic Liquidity Ratio is simply how many months of expenses your liquid cash and savings can cover without any income. It is the most direct measure of your financial safety net. If you lost all income tonight — job loss, a medical inability to work, a business shutdown — this number tells you how many months before you run out of money for essential expenses.

Six months is the minimum because that is typically how long it takes to find a new job in a difficult market, recover from a serious illness, or navigate a business disruption. Three months might work for a single person in a stable government job with no dependants. But if you have a family, a home loan, school fees, or run a business, 6 months is the floor — and 9–12 months is safer. The basic liquidity ratio operationalizes this concept with your actual numbers.

Only count assets you can convert to cash within 48–72 hours without a meaningful loss: cash in hand and savings accounts, liquid mutual funds (overnight or ultra-short), and short-duration FDs under 7-day lock-in. Do not count long-lock-in FDs, PPF, ELSS funds under lock-in, gold you would need to physically sell, or stocks you cannot sell quickly. The rule is simple — if you cannot access it in a genuine emergency this week, it does not count.

Basic Liquidity Ratio = Liquid Cash Assets ÷ Monthly Expenses. The result is expressed in months. Monthly expenses should include rent or EMI, groceries, utilities, insurance, school fees, transport — every regular outflow. Do not include savings or investments as expenses; this is spending only. The most common mistake is underestimating monthly expenses or counting investments as part of the emergency fund.

This section shows you how your annual take-home income is actually allocated — what percentage goes to household expenses, to debt repayments, to savings and investments, and what is left as free cash. Most people have a rough sense of these figures but have never seen them visualised as a clear proportion of their income. The bar chart makes the split immediately visible.

A commonly used framework is: household expenses should not exceed 50% of net income, EMI and debt repayments should be below 35%, savings and investments should be at least 10%, and free cash (for discretionary spending, leisure, contingencies) is whatever remains. In practice, many households in metro India find expenses alone consuming 60–70% of income — which is not automatically a crisis, but it does limit savings capacity significantly and needs to be managed down over time.

Free cash is the income left after expenses, EMIs, and planned savings. It is not necessarily wasted — it covers discretionary spending, small unexpected costs, and the lifestyle enjoyment that makes a financial plan sustainable. However, if free cash is very high (above 30%) and savings are low, it is a signal that more of that free cash could be directed to wealth-building. If free cash is negative, you are spending more than you earn — a structurally unsustainable position that must be corrected.

The most effective lever is the savings rate. Even small, consistent increases compound significantly over time. The second lever is reducing the debt service burden — prepaying high-interest loans first (personal loans and credit cards before home loans) frees up cash for savings. Reducing household expenses is powerful but harder to sustain long-term; it works best when targeted at specific categories (dining out, subscriptions, impulse purchases) rather than applied broadly. The goal is not perfection — it is consistent progress in the right direction.