We all agreed that prevention was essential rather than cure, given how difficult it is to see a doctor at the local surgery these days, how the cost of non-government-funded health care is prohibitive, and how even statutory sick pay is hardly enough to cover day-to-day expenses.

However, prevention does not always work, and plenty of other non-health issues can lead to a sudden and unexpected call on funds.

Money always comes into it.

Two key financial ratios are particularly appropriate to the scenario we discussed in the deli.

Your savings ratio simply tells you how much of your gross monthly income goes into savings. If you save £5,000 pa from a gross income of £50,000 pa, your savings ratio is one in ten or ten per cent.

The other related ratio, your liquidity ratio, tells you how long your savings will cover your monthly expenditure. If your monthly spending is £1,000 and you have readily accessible cash savings (liquidity) of £10,000, your liquidity ratio is ten months.

What should your savings ratio be?

Your savings ratio will depend on how much liquidity you already have and how much you feel you need. The latter will depend on your emotional needs as well as the practical. A client of mine, for instance, insisted on keeping liquid cash of at least £100,000. Any less, and he felt uncomfortable, even though it was not financially necessary.

Consider factors such as State benefits, company healthcare, insurance policies, and business revenue projections.

What are savings?

Liquid cash, which you can get hold of in less than five days, is a security fund to cover you against unexpected expenditures (the car breaks down, for instance) and a sudden loss of income (you have an accident, break a leg and are forced to put your consultancy business on hold for a short while.) Savings directed into investments and pension funds will support your longer-term aspirations and retirement.

How do I cultivate a savings mindset?

George Classon, author of The Richest Man in Babylon, suggests that a little of what you earn is yours to keep. He recommends treating most of our earnings as belonging to someone else, such as utility companies, grocery stores, petrol stations, etc. What is left belongs to you and is yours to keep.

Thinking about “savings” in this way changes the dynamic from “giving” as much of it away to others to keeping as much as you can.

The balance between living for today and saving for tomorrow is a fundamental element of your mindset. This concept goes back to “enough”, knowing when you are enough and when you have enough.

Attributions and references

Photo attribution

Photo by 2H Media on Unsplash

Audio link

https://audio.com/jeremy_deedes/savings-ratio/

Other attributions and references

Clason, George S. The Richest Man in Babylon. Createspace Independent Publishing Platform, 8 Nov. 2017.

Taking it further

Deedes, Jeremy. Enough: Unlock a Life of Abundance Starting Right Where You Are. Melbourne, The Right Company Press, 28 Oct. 2021.

Related posts

https://wordsnotdeeds.co.uk/health-concerns/ 

https://wordsnotdeeds.co.uk/financial-ratios/ 

https://wordsnotdeeds.co.uk/financial-calm/

ABOUT

I work with ambitious, family-oriented professionals transitioning to independent consultants to create a 3 to 5-year holistic plan so that they grow wealthy, make a difference and find meaning.

My clients are aged 35-50. They are in a long-term relationship with family and parents who are supportive but ageing. They wrestle with personal and financial responsibilities and dream of more control, wealth, time and purpose.

If this excites you, you are coachable, willing to change, and want to stop going around in circles, then find out more at jeremydeedes.com

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