Jeremy Deedes helps parents whose kids have left home to grow their wealth, find their purpose and thrive with grace and style

The After The Kids Leave Home Newsletter

This newsletter supports parents whose kids have left home as they reset their lives and money for wealth, purpose, grace and style.

How to use key financial ratios to become financially resilient

Nov 4, 2023 | PSL Newsletters

Welcome to the November edition of The Meaningful Newsletter, which continues with the theme of resilience by drilling into financial resilience and the power of Key Financial Ratios. Find links to free downloadable assessments and factsheets at the end, and an offer to get your personal resilience assessment at half price during November.
Welcome to the November edition of The Meaningful Newsletter, which continues with the theme of resilience by drilling into financial resilience and the power of Key Financial Ratios. Find links to free downloadable assessments and factsheets at the end, and an offer to get your personal resilience assessment at half price during November.

The United States has nominated November 2023 as Critical Infrastructure Security and Resilience Month. Similarly, I recommend my clients and followers focus on personal resilience in November. It makes sense because the advent of the long nights and cold days of winter leave you and me prone to mishaps and stress.

 

A key element to your overall resilience is your financial resilience. In last month’s newsletter, I set out the nine essential elements of personal resilience. I included money because money makes the world go round. Think about it. Can you list five occasions or activities where you are not spending money?

 

Even sitting at home this weekend reading a book, your money still leaves your bank account as regular automatic payments for rates, water, fuel and light – even more so in winter.

 

How to achieve a balanced and proportionate financial resilience

 

On the plus side, of course, if you are employed and paid a salary, money will still come in at the end of the month, although you are not at work at the moment. Or you run your own business, and your evergreen products get sold off your website without you doing anything.

 

Money, for better or worse, is ever present, but allowing money to become the centre of your universe is as dangerous as having no interest in money. So, how do you achieve balanced and proportionate financial resilience in your life?

 

I’ll suggest two routes for you. The first is having a mature relationship with money, an essential element of personal financial management often overlooked by clients and their advisers. I addressed this in my March newsletter. You can download a free assessment at the bottom of this newsletter to help you develop your financial maturity.

 

If financial maturity is a right-brain concept focusing on your hopes, fears and emotions, the second route is a left-brain spreadsheet activity based on developing and applying Key Personal Financial Ratios.

 

Turn raw financial data into a meaningful direction with Key Personal Financial Ratios.

 

First, you must complete the work of compiling financial statements, so you know everything there is to know about your assets, liabilities, income and expenditures. (It’s easy, though working out your expenditure can take time, and my template below will help.)

 

The question is, do you understand what the statements mean? Is your situation good or bad, or are you unsure? How resilient are you to financial shocks, whether a stock market crash, redundancy, incapacity or any other factor affecting your finances? Where do you need to make changes?

 

One way to find out is to calculate your critical personal financial ratios from the information you have compiled in your statements.

 

  • Liquidity: do you have a security or emergency fund? How many months of expenditure will it cover? Is this sufficient regarding the security of your income and insurance arrangements?
  • Savings ratio: how much of your household income is saved each month?
  • Savings to income: what is the size of your savings relative to your income? The figure should grow throughout your working life.
  • Debt to income: what is the size of your debt relative to your income? The figure should fall throughout your working life.
  • Debt to assets: what are your liabilities relative to your total and liquid assets?
  • Debt servicing costs: what are your debt serving costs relative to your net income?
  • Debt servicing reserve: how many months’ debt-servicing costs are covered by liquid assets?

 

I’ve provided more details in the Financial Key Ratios factsheet, which you can download below. Once you have calculated these ratios, decide how you feel about them. Decide what is a comfortable ratio for you. Give each a red, amber or green flag depending on how close the actual ratio is to your aspirational ratio. Consider what they tell you about your ability to achieve your goals and your short and long-term financial resilience.

 

Acknowledgement

Charles Farrell first introduced the concept of Key Personal Financial Ratios in an article for the January 2006 Journal of Financial Planning entitled Personal Financial Ratios: An Elegant Roadmap to Financial Health and Retirement.

Resources and reading

References

  • Critical Infrastructure Security and Resilience Month: https://www.whitehouse.gov/briefing-room/presidential-actions/2023/10/31/a-proclamation-on-critical-infrastructure-security-and-resilience-month-2023/
  • Personal resilience newsletter post: https://wordsnotdeeds.co.uk/protect-your-way-of-life/
  • Money maturity newsletter: https://wordsnotdeeds.co.uk/money-world/.

 

Factsheets, templates and assessments

Download these free factsheets to help you develop your financial resilience.

 

Financial maturity assessment: https://shrtm.nu/mdw
Financial statements template: https://shrtm.nu/mdx
Financial key ratios assessment: https://shrtm.nu/mdy

 

Further reading

 

Deedes, Jeremy. Right Money, Right Place, Right Time – Personal Finances to Transform Your Life and Secure Your Future. Rethink Press Limited, 19 Jan. 2015. (See also https://wordsnotdeeds.co.uk/rmrprt/)

 

Deedes, Jeremy. “Really Useful Books about Money (and Other Helpful Resources).” Words Not Deeds, 12 Dec. 2016, wordsnotdeeds.co.uk/money-books/. Accessed 2 Mar. 2023.

 

Personal Resilience Assessment

 

Now the kids have left home, your life is changing. The change may be dramatic or quiet and subtle, but it is changing.

You may not even notice, and the danger is that the protections you had in place for your life as an active parent will not suffice as your work, health, finances and connections all change.

And resilience is not just about avoiding life’s curve balls. Your resilience is the foundation for your future life and will help you grow your wealth, find a new purpose and, above all, live with grace and style.

So, have you done enough to protect your way of life now the kids have left home?

To find out, book your personal resilience assessment with me, which includes a 40-question scorecard and a 45-minute personal evaluation call with me.

At the end, you will have

  • A detailed report identifying the strengths and weaknesses in your resilience
  • A list of priority tasks which will dispel any feelings of anxiety and uncertainty you may be feeling (it’s better to know your vulnerabilities and do something about them than not to know at all)
  • An outline of the first steps you need to take to build on your resilience to grow your wealth and enhance your way of life.
  • An opportunity to discuss additional coaching with me to support you as you organise your life and money so that you grow your wealth, find your purpose and live with grace and style.

The Personal Resilience Assessment takes about an hour and costs typically £97. However, it will be available throughout November at a 50% discount. Use the code PRAP50 at the checkout.

Attribution

Photo by Alejandro Escamilla on Unsplash

Next steps

If you want to talk more about overcoming your problems and making the most of opportunities after the kids leave home, send an email to me at jd@projectsophialtd.co.uk or book a free 20-minute consultation call.

If you’ve just subscribed… 

Welcome to After the Lids Leave Home, a monthly newsletter providing support across a range of topics for parents whose kids have left home as they reorganise their lives and money to grow their wealth, find a new purpose by making a difference and live with grace and style. Find out more at jeremydeedes.com.

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Your views are important, and your fellow readers would love to hear your opinion, so share your thoughts in the comments box below, and thank you for your time and generosity.

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