Personal finance money ratios is something that you may have seen from reading other personal finance blogs. Basically, common stock ratios like current ratio (assets/liabilities), debt to equity ratio, income to debt, or cash flow are applied to personal finance instead of companies.

Although I haven’t calculated money ratios for my finances, I’ve always had a curiosity as to how effective they are in helping achieve financial goals.  An indicator is one thing, but used in context of the bigger picture is another.

The book “Your Money Ratios” does just that, it basically shows you the ratios that you should have at certain age levels to achieve your financial goals.  Although this book was written for an American audience (social security etc), the theme is relevant for everyone.  I’ve written a money ratio’esque article in the past where I calculated how much you need to save for early retirement, but perhaps I’ll do more Canadian relevant stuff in the future.

About the Author:

According to the book:

Charles J. Farrrell is an investment adviser with Northstar Investment Advisors, in Denver.  He writes the “Retirement Roadmap” column for the CBS Moneywatch site and contributes a monthly retirement column for advisers to InvestmentNews.  His research is frequently cited in The Wall Street Journal, SmartMoney, the Chicago Tribune, and many other consumer and professional media outlets.

About the Book

As you can probably conclude from the book title, the content focuses around personal finance money ratios for different age groups.  What I like about this book is that it shows the ratios that you should aim for to reach certain financial milestones.  It’s one thing to say to save 10% of your income, but what does that really mean during retirement?  Other questions that the book answers is how much mortgage debt is acceptable at certain age groups?  How much capital should I have relative to my age (net worth)?

The 8 Money Ratios covered are:

  1. Capital to Income Ratio – How much capital do you have relative to your income?  How much do you need to retire?  The author does not include principal home equity as part of the calculation, but states that a 30 year old should have a ratio of 60% of income in capital.  For example, if a 30 year old was making $100k per year, he should have at least $60k in capital not including his home equity.
  2. Savings Ratio – How much of your income are you saving to reach your desired capital to income ratio?  The author recommends saving at least 12% of gross income starting at age 25, increasing to 15% at the age of 45.  Of course, the higher your savings ratio, the earlier you can retire.
  3. Mortgage to Income Ratio – How big is your mortgage relative to your income?  The author and I have the same beliefs about this one, the mortgage size should not be greater than 2 times family income.
  4. Education to Average Earnings Ratio – This ratio indicates how much student debt you should take on to obtain a degree.
  5. Investment Ratio – How to grow and protect the capital you have accumulated.
  6. Disability Insurance Ratio – As a big believer in disability insurance, I believe that enough disability should be obtained to cover expenses, and not to simply replace income.  The book describes how much disability insurance you need at each age group.
  7. Life Insurance Ratio – As another pillar of personal finance, term life insurance is a must. The author explains how much life insurance you need at each age group.  To me, it’s a factor of your dependents and how much assets you have already accumulated.
  8. Long Term Care Ratio – This helps determine if you need long term care insurance.  Personally, I haven’t given much thought to this one.

Final Thoughts

I enjoyed this book as it provided hard numbers and facts that show the path to financial freedom.  As well, the author had a part on retirement withdrawal rates.  I’ve written about these before, but he explained that a 5% retirement portfolio withdrawal rate is perhaps a bit aggressive, but a 4% withdrawal rate should work 95% of the time.

Although all the ratios may not be completely accurate to Canadians, most of them are pretty close as Canadians have CPP and OAS instead of Social Security.

Want a Free Copy?

The book publisher was generous in offering Million Dollar Journey readers the chance to win 3 copies of the book.  The details are below:

  1. New and existing MDJ Money Tips Newsletter Subscribers get an entry.  You can sign up here (it’s free).
  2. Tell me what your favorite book is in the comments for an additional entry.  It doesn’t need to be finance related.
  • Only those with a North American mailing address may enter (publisher rules, sorry).
  • Contest will end Sat 5pm EST Jan 16, 2010 and the winner announced shortly after!
If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).


  1. George on January 11, 2010 at 10:12 am

    So far my favorite personal finance book is Your Money or Your Life. I’ve been meaning to read the revised/updated edition for a while now. Your Money Ratios looks like something I’d enjoy reading – count me in!

  2. Pat on January 11, 2010 at 10:57 am

    My favorite book remains The Millionaire Next Door. So many things you wouldn’t expect.

  3. Moira on January 11, 2010 at 11:02 am

    I think my favorite financial book is the Millionaire Next Door. I could never name a favorite book in general: I love just too many.

    This book looks very interesting to me.

  4. cbez on January 11, 2010 at 11:12 am

    I really like “Total Money Makeover” by David Ramsey.

  5. RI on January 11, 2010 at 11:18 am

    I second Pat, my favorite book is “The Millionaire Next Door”. Recently, I also like “Enough” by John Bogle.

  6. 2 Cents on January 11, 2010 at 11:31 am

    My favourite book so far is “All Your Worth” by Elizabeth Warren and Amelia Warren Tyagi. I’ll have a complete review of it up on Wednesday. I really do think it covers the basics of personal finance better and more simply than anything I’ve read thus far.

    P.S. – I would love to read a future post from you on Canadian-relevant ratios and retirement planning!

  7. Aaron on January 11, 2010 at 11:35 am

    My favourite non-finance book is “Chaos: Making a New Science” by Gleick. (I”m a math geek!)

    On the finance side, my favourite book has to be “Unveiling The Retirement Myth” by Otar. (Lots of math in this one too.)

  8. Ramona on January 11, 2010 at 11:39 am

    So here’s a sillier response to my favourite personal finance book – Confessions of a Shopaholic by Sophie Kinsella. I just find it so amusing to see how she justifies her spending excesses. It reminds me of many people I know. But on the more serious side, as a Certified General Accountant, I am always relying on ratios to tell me a story, so I’d love to throw my hat in the ring for this generous freebie. Thanks FT!

  9. Asher on January 11, 2010 at 11:56 am

    My favourite non-finance book is probably The Wolf of Wall Street.

    Favourite finance book would be The Wealthy Barber – David Chilton is a fellow Laurier BBA grad and I heard him speak there when I was in first year.

  10. Returns Reaper on January 11, 2010 at 12:07 pm

    My favourite book is David Swenson’s Unconventional Success.

    This book sounds like a pretty handy book that covers a broad spectrum of PF issues. Thanks FT for a chance to win a copy.

  11. tom on January 11, 2010 at 12:22 pm

    My favourite book is the Intelligent Investor by Benjamin Graham

  12. Dana on January 11, 2010 at 12:31 pm

    So many books…it’s hard to choose just one…but I will say “Richest Man in Babylon”. It is a classic and the lessons are always timely and universal.

    Hope I win the book!

  13. Barry on January 11, 2010 at 12:49 pm

    I just started to clean up my finances and The Wealthy Barber helped reinforce my knowledge of personal finance.

    Although I don’t agree with everything Chilton has to say the majority of it is pretty solid. The only real issues I had with the book are some parts are dated e.g. homes being $100K in Kitchener. Or expecting mutual funds to average 10-12% returns.

    Still an excellent book to get you started.

  14. Debbie on January 11, 2010 at 12:52 pm

    My favourite book is completely non-financial, it’s My Sister’s Keeper, a story of the struggle of a mom raising a daughter with cancer. With two young children, it’s an eye opener of how fast life can change and how all financial plans can quickly change. A motivation to ensure you do your best to manage finances while life is on track, just in case….

  15. Joel on January 11, 2010 at 12:53 pm

    Four Pillars of investing

  16. Carter on January 11, 2010 at 12:54 pm

    best book ever: The ultimate gift – a must read for everyone!

  17. ryan on January 11, 2010 at 12:59 pm

    Buffett, by Roger Lowenstein.

    The principles taught are epic.

  18. Matthew Gip on January 11, 2010 at 1:00 pm

    Catcher In The Rye, classic novel about a boys mental problems.

  19. Stephanie on January 11, 2010 at 1:18 pm

    My favorite book is “To Kill a Mockingbird”

  20. Steve Zussino on January 11, 2010 at 1:27 pm

    I agree with the others, The Millionaire Next Door. My wife told me a story from the beginning of the book (rock climbing) and it is very memorable.

  21. Josh on January 11, 2010 at 1:38 pm

    Not finance-related: Carl Sagan’s Demon-Haunted World.

  22. Florence So on January 11, 2010 at 1:42 pm

    favourite non-finance book: Seven habits of highly effective people.
    favourite finance book: The Wealthy Barber

  23. Eric on January 11, 2010 at 1:46 pm

    My favorite book, without hesitation, is “The Alchemist” by Paulo Cohlo. The book is inspirational.

  24. Julie on January 11, 2010 at 1:47 pm

    Not finance-related: Microserfs by Douglas Coupland.

  25. Maiku on January 11, 2010 at 1:49 pm

    I don’t know if it is my all-time favourite but a really great one that I read recently was “Filthy Lucre: Economics for those that hate Capatilism” by Joseph Heath. He pointed out a lot of things that challenged somewhat naive assumptions that I had.

  26. nobleea on January 11, 2010 at 1:52 pm

    i’d say my favourite finance book is Smart couples finish rich, by david bach.
    favourite non finance book is the timothy zahn star wars sequel trilogy (geek alert!)

    I think the topics in this post should be a seperate post (the ratios) open for discussion. it’s tough to talk about them when there’s a book contest.

  27. James on January 11, 2010 at 1:59 pm

    A recent favorite of mine is Outliers by Malcolm Gladwell.

  28. Millionaireby45 on January 11, 2010 at 2:03 pm

    Favorite Financial Book – The Intelligent Investor

    Favorite Fiction – Lovely Bones

  29. Chris on January 11, 2010 at 2:08 pm

    This isn’t a personal finance book but definitely one of my favorites on the subject of money. “The Ascent of Money – by Niall Ferguson”.

  30. Saver on January 11, 2010 at 2:09 pm

    My current favorite is Rich Dad, Poor Dad… Haven’t finished yet though!

  31. Sampson on January 11, 2010 at 2:17 pm

    On The Road – Jack Kerouac

  32. Daniel on January 11, 2010 at 2:19 pm

    I enjoyed reading Smoke and Mirrors as it gave some insight into what the banks and advisors are pitching.

  33. andrewbpaterson on January 11, 2010 at 2:28 pm

    I enjoyed Tim Ferriss’ The Four-Hour Workweek.

    There are many useful tidbits:
    – how to increase productivity and efficiency at work (and how to use that efficiency to get a work-from-home arrangement);
    – how to start a business that is both scalable, and one which removes the owner from being the go-to decision maker for EVERYTHING; and also
    – the ins and outs of taking mini-retirements which open up the world in a cheaper and more intimate way.

  34. Matt Tucker on January 11, 2010 at 2:40 pm

    I enjoyed the Tipping Point by Malcom Gladwell.

  35. Jen Moore on January 11, 2010 at 2:55 pm

    I recently read “Boy in the Moon” by Ian Brown. This was an extremely moving true story of Ian’s family’s stuggles and triumphs in their lives with their severely disabled son. It will make you laugh and cry as you relate to their experiences. It’s a must read for any parent and I can tell you that as a financial planner, this has inspired me to find ways that I can be of assistance to families of children with disabilities. This family was relatively “lucky” because they speak english, have good educations, have stable incomes, group benefits and an incredible ability to advocate for themselves and their son in the government/health system. I just know there are families that are lacking in one or all of those things that I hope I can help! Having a child with a disability is difficult enough as it is, but the financial difficulties that go with that situation are huge!

  36. birdiegirl on January 11, 2010 at 3:11 pm

    My favorite fiction novel is Pillars of the Earth by Ken Follett.

  37. Benjamin on January 11, 2010 at 3:16 pm

    My favourite book is Good to Great by Jim Collins. I like its hedgehog concept

  38. Sam on January 11, 2010 at 3:24 pm

    A fascinating non- fianacial book to read is “Iconoclast: A Neuroscientist Reveals How to Think Differently” by Gregory Berns.

  39. steve on January 11, 2010 at 3:27 pm

    Currently reading The Intelligent Investor – too heavy for me, but slogging through.

    Non-finance, Tale of Two Cities by Dickens. Farewell to Arms was good – ending was incredibly sad. Grapes of Wrath was good – ending was the best in literature.

  40. Michael on January 11, 2010 at 3:41 pm

    The book that I just finished reading and loved was Freakonomics. It really made you think about things outside the box.

  41. Chris on January 11, 2010 at 3:42 pm

    The Millionaire Next Door was a great read for me.

  42. Chris Watts on January 11, 2010 at 4:20 pm

    Sounds really interesting; as someone who has minimal life or disability insurance, I’m curious to read what he has to say on that score.

    As for books, anything by John Irving.

  43. Caitlin on January 11, 2010 at 4:29 pm

    Sounds like an interesting read! I’d love to read it.

    I love too many books to have a favourite, but I adore anything by Robert J. Sawyer, and most urban fantasy.

  44. Neeraj on January 11, 2010 at 4:44 pm

    My favourite is Freakinomics

  45. Kevin on January 11, 2010 at 5:01 pm

    Smart Couples Finish Rich by David Bach.

  46. Nick on January 11, 2010 at 5:03 pm

    My favorite book is Blink by Malcolm Gladwell.

  47. jason on January 11, 2010 at 5:13 pm

    Complexity and Contradiction in Architecture by Robert Venturi

  48. Bryce on January 11, 2010 at 5:13 pm

    This book sounds like a good read.

    My favorite has to be Moneyball by Michael Lewis.

  49. Henry on January 11, 2010 at 5:14 pm

    Fooled by Randomness by Nassim Taleb.

    It was very interesting and philosophical. A must read for anyone who wants to think from a perspective of uncertainty.

  50. wrc on January 11, 2010 at 5:17 pm

    Almost a tie for my favorite book, “For Whom the Bell Tolls” (Hemingway) edges out “The Razor’s Edge” (Maugham)

  51. John on January 11, 2010 at 5:18 pm

    How to win friends and influence people – weird title, but really cool book.

  52. Mike on January 11, 2010 at 5:27 pm

    Favorite Book I’ve read in the last two months:

    The Dip by Seth Godin.

    Smallest book but packed with great messages.

  53. Gerry on January 11, 2010 at 5:27 pm

    The intelligent investor, by Benjamin Graham

  54. Mike on January 11, 2010 at 5:30 pm


    I haven’t read the new edition but supposed to be just as good as the original. Definitely recommend to everyone who frequents this site. My fave book of 2008 for sure.

  55. Money Lover on January 11, 2010 at 5:41 pm

    Personal Finance is hard enough for some people to deal with never mind creating a bunch of ratios that wouldn’t mean much to them. Keep it simple.

  56. Money Lover on January 11, 2010 at 5:45 pm

    Favorite finance book… One Up on Wall Street by Peter Lynch. Well written and practical. Fave Fiction would have to be Count of Monte Cristo.

  57. Xenko on January 11, 2010 at 6:14 pm

    My favourite book it Lord of the Rings.

  58. Mark on January 11, 2010 at 6:15 pm

    “One up on wall street” Peter Lynch.

  59. Kelly on January 11, 2010 at 6:22 pm

    It’s hard to pick a favourite book, but one of my favourites is What Men Don’t Tell Women About Business.

  60. Mockingbird on January 11, 2010 at 6:43 pm

    I would say “The Wealthy Barber” is my favourite finance book. Read it during the university days and still holds true.

  61. Erick on January 11, 2010 at 7:08 pm

    Blink by Malcolm Gladwell

  62. Lori on January 11, 2010 at 8:10 pm

    I like The Wealthy Barber.

  63. Chantal on January 11, 2010 at 8:18 pm

    I’m another big fan of The Wealthy Barber. I first read it in the early ’90s and then recommended it to my brother when he finally got interested in finances about a decade later. He enjoyed it every bit as much as I did.

  64. RetirementInvestingToday on January 11, 2010 at 8:26 pm

    If you want a very early retirement saving 12 to 15% of gross earnings won’t be enough. With a lot of focus and attention I’m now achieving 60% of gross earnings. I’m just over 40% towards financial independence and at my current rate work becomes optional in about 7 years.

  65. M on January 11, 2010 at 8:26 pm

    My favourite book is “The Iron Dragon’s Daughter”

  66. chris on January 11, 2010 at 8:44 pm

    ‘wealthy barber’ great book that got the money sense wheels turning! made investing and saving sound smart and savy

  67. Adam on January 11, 2010 at 9:26 pm

    Your Money and Your Brain – Jason Zweig

    Great book about how your brain interprets financial decisions and the biological effects money has on your body. enlightening.

  68. Jonathan on January 11, 2010 at 10:26 pm

    in defense of food by michael pollan

  69. Dane on January 11, 2010 at 11:00 pm

    This one looks really interesting. Definitely a different take on finances! So far, I think my favorite has been Your Money Or Your Life. Gave me some real food for thought!!

  70. Lyne on January 11, 2010 at 11:36 pm

    Thank you for the review, very interesting. I am currently reading The Four Pillars of Investing and it’s definitely the best finance book I have read so far :-)

  71. Brian on January 11, 2010 at 11:39 pm

    Favourite book overall is the Lord of the Rings trilogy. Favourite finance book is The Investment Zoo by Stephen Jarislowsky.

  72. Darryl on January 11, 2010 at 11:55 pm

    My favourite book right now is Freakonomics – an interesting look at real life scenarios from the view of an economist.

  73. Michael on January 12, 2010 at 12:14 am

    Favorite book, “Summer of ’49” – by David Halberstam. Excellent read on the pennant race and life in 1949

  74. JFG on January 12, 2010 at 12:32 am

    The Wealthy Barber

  75. Terri on January 12, 2010 at 12:44 am

    Thanks for the contest!
    The Lovely Bones by Alice Sebold.

  76. Greg on January 12, 2010 at 1:09 am

    I’ve read a few finance books, but the 2 that I actually enjoyed reading were:
    – One Up on Wall Street
    – Beating the Street
    Both by Peter Lynch

  77. Iamphysio on January 12, 2010 at 1:12 am

    The Wealthy Paper Carriers by Cimmer. Excellent book for anyone who knows kids age 10+ who are starting to show interest in finances and a great one prior to reading the Wealthy Barber.

  78. cannon_fodder on January 12, 2010 at 1:45 am

    Favourite book? That’s a tough one. When I was a kid it was “My Side of the Mountain” followed closely by “Call of the Wild”.

    But, maybe my favourite is “I, Robot” which is a collection of stories. I love science fiction whether it is in books or movies.

  79. telefantastik on January 12, 2010 at 3:37 am

    Wealthy Barber by David Chilton

  80. Rob Anderson on January 12, 2010 at 5:16 am

    The Blessing of a Skinned Knee: Using Jewish Teachings to Raise Self-Reliant Children by Wendy Mogel

  81. Link Wheels on January 12, 2010 at 7:38 am

    Rich Dad, Poor Dad has to be my favorite financial book.

  82. Patricia on January 12, 2010 at 9:51 am

    The Guernsey Literary and Potato Peel Pie Society by Mary Ann Shaffer & Annie Barrows is my choice.

  83. Marianne O on January 12, 2010 at 11:28 am

    My favourite money book is definitely “The Richest Man in Babylon.” But my all-time favourite book is “Watership Down” — for me this book has it all — humour, adventure, mythology, strategy and tactics, etc. etc.

  84. Jeff G on January 12, 2010 at 11:45 am

    I love pretty much every book Robert Ludlum has written.

  85. Sam Mak on January 12, 2010 at 2:40 pm

    I’ve enjoyed all of Malcolm Gladwell’s books recently. I’m only starting now to read into financials so this book would be a good starter. Here’s hoping!

  86. InstruMike on January 12, 2010 at 3:33 pm

    Money Ratios sounds interesting

    Fav. finance book has to be the intelligent investor

    Also anything by Ken Follet or Stephen Hawking

  87. tin on January 12, 2010 at 3:57 pm

    The Intelligent Investor by Benjamin Graham

  88. Rishi on January 12, 2010 at 4:24 pm

    My favourite book is Zero to Zillionaire by Chellie Campbell

  89. lb71 on January 12, 2010 at 4:31 pm

    Rohinton Mistry’s “A Fine Balance”. It has nothing to do with finance, and I will probably never read it again since it is so emotionally gut wrenching, but it is one of the best books I have ever read.

  90. Shawn on January 12, 2010 at 5:34 pm

    Push by Sapphire

  91. Richard on January 12, 2010 at 5:34 pm

    My favorite finance book is The Wealthy Barber.

  92. Michael on January 12, 2010 at 5:57 pm

    My favourite book is Lord of the Flies.

    Thanks for the contest MDJ

  93. TKO on January 12, 2010 at 6:50 pm

    I haven’t read too many finance books but I enjoyed Rich Dad, Poor Dad.

  94. Elbyron on January 12, 2010 at 9:24 pm

    I haven’t read a lot of finance books, but my favorite so far is John Bogle’s “The Little Book of Common Sense Investing”. It really opened up my eyes about the truths behind many mutual funds and the benefits of index funds.

  95. Catherine on January 12, 2010 at 9:33 pm

    Recently finished Lynch’s “One Up On Wall Street,” which I found both entertaining and educational. I also like “The Wealthy Barber.”

  96. NorthernAlex on January 12, 2010 at 9:36 pm

    Hmm. Looks like that I have to read The Millionaire Next Door after I read this one (after winning of course) :-).

  97. Fab on January 12, 2010 at 9:40 pm

    My favorite book is : “Pillars of the earth” from Ken Folett.

  98. as @ financial tactics on January 12, 2010 at 9:45 pm

    A favourite book: Speak, Memory by Vladimir Nabokov. Nothing about money in it.

  99. Jared on January 13, 2010 at 11:27 am

    Getting Things Done is a great book

  100. used tires on January 13, 2010 at 11:47 pm

    Some of these ratios have been covered in my Finance courses, good take on it by the author, I may have to see if this book is available at my local library to read up extra on it =D

    Till then,


  101. NS on January 14, 2010 at 1:33 am

    My favorite book is “The Day of The Jackal” by Frederick Forsyth

  102. Lisamm on January 19, 2010 at 5:11 pm

    Thanks so much for the interesting review of Your Money Ratios by Charles Farrell. We really appreciate the time and effort that went into reading and reviewing this book!

    I love books and would have a hard time picking a favorite, but if I had to I’d say Snow Flower and the Secret Fan by Lisa See. It has nothing to do with money or personal finance, though!

  103. Ed Rempel on January 22, 2010 at 11:52 pm

    Hi FT,

    My favourite finance books are “Stocks for the Long Run” by Jeremy Siegel and “The Myth of the Rational Market” by Justin Fox.


  104. Maxwell on April 23, 2010 at 6:02 pm

    I gotta go with Intelligent Investor by Graham, but Tipping Point by Gladwell is a close second.

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