Money Matters: What's your net-worth growth ratio?

Sometimes numbers are more important than words because at times numbers tell a better story. Take your financial health for instance. Knowing your personal finance ratios can help you understand your financial health better than an essay summary of your finances. In fact, Firstpost has been running a series on personal finance ratios for the last three weeks. In this series, we’ve told you about solvency ratio , life insurance coverage ratio , basic liquidity ratio , debt service ratio , leverage ratio and savings ratio .

Today we help you understand yet another, the networth growth ratio.

What is it: Simply put, networth growth ratiois a ratio that will tell you the rate at which your net worth is growing.

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Example: To calculate this ratio, you need to know the net increase in your net worth and divide it by your net worth at the beginning of the year.

[caption id=“attachment_1045989” align=“alignleft” width=“380”]  Ratios like these give you a real picture of your financial health.[/caption]

So, let’s say that your net worth at the beginning of the year was Rs 40 lakh, and at the end of the year your net worth is Rs 43,00,000.

So you net worth growth ratio is (43,00,000-40,00,000)/40,00,000, which is0.075

Multiply this figure with 100 and you get the net-worth growth ratio, which is 7.5 percent in this case.

**Are you in red zone:**The above example shows that your net worth is growing at the rate of 7.5 percent. Now if the inflation is 5 percent, then this ratio shows that your net worth is growing only at a rate of around 2.5 percent.

Ratios like these give you a real picture of your financial health. While the above example shows that your net worth grew by Rs 3 lakh in actual rupee value, the rate at which your net worth grew was only around 2.5 percent, which is not an impressive number.

Keep tracking this space as we bring you more ratios to help you understand where you stand financially.