When you think about managing your net worth, you’re likely thinking about the assets side of your balance sheet. But net worth is assets minus debt. If you’re focused only on one side of your balance sheet, you may be missing half the picture. The key is to understand your debt-to-Income ratio. Do you know yours?
Start with the household pre-tax annual income. Combine annual expense amounts of mortgage/rent, homeowners/renters insurance, real estate property taxes, and necessary utilities (gas, electric).
The results of dividing annual expenses into annual pre-tax income is your front-end ratio. This ratio should never be above 28%.
Your back-end ratio is calculated using the annual expenses noted above plus credit card payments, car payments, student loans, child support, alimony and any other monthly contractual obligations. This ratio should never be greater than 36%,
Learning to live like no one else, so later you can give like no one else. Give 10%, save 10% and live on the rest. You will never regret it.
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