1. Calculate Your Cash Flow

Formula:
Income – Expenses = Cash Flow
- Positive cash flow means you’re living within your means and can allocate excess funds to savings or investments.
- Negative cash flow signals overspending, risking debt or depleting savings.
- Pro Tip: Include all recurring, occasional, and unexpected expenses for a more accurate assessment.

2. Leverage Ratio Using Income

Formula:
Debt Payments ÷ Income = Leverage Ratio
- Rule of thumb: Keep power ratio below 33% of your income.
- Example: If monthly debt is $1,000 and income is $4,000, power ratio = 25%.
- This shows how well you can cover debts, even in tough times like unemployment.

3. Leverage Ratio Using Equity

Formula:
Total Debt ÷ Total Equity = Leverage Ratio
- Equity: Ownership interest in an asset (e.g., home value minus mortgage owed).
- Lower ratios indicate better financial health and lower risk.
- Helps assess your readiness for risks like job changes or large investments.

4. Inflation-Adjusted Return

Formula:
(1 + Investment Return) ÷ (1 + Inflation Rate) – 1 x 100 = Real Return
- Example: If investment return = 8% and inflation = 3%,
Real Return = [(1.08 ÷ 1.03) – 1] x 100 = 4.85%.
- Shows the actual purchasing power of your investments over time.

5. Calculate Gains or Losses

Formulas:
- Gain: (Market Price – Purchase Price) ÷ Purchase Price = Percentage Increase
Example: Bought at $60, now $100. Gain = 67%.
- Loss: (Purchase Price – Market Price) ÷ Purchase Price = Percentage Decrease
Example: Bought at $200, now $100. Loss = 50%.

6. Rule of 72 (Time to Double Money)

Formula:
72 ÷ Annual Interest Rate = Years to Double Investment
- Example: At a 5% interest rate, it takes 14.4 years to double.
- Helps compare investment options and estimate growth timelines.

Additional Financial Tips

• Start Early: Investing consistently (even small amounts) can yield significant growth through compounding.
• Track and Analyze: Use tools like spreadsheets or apps to monitor cash flow, net worth, and portfolio performance.
• Focus on Goals: Prioritize investments that align with long-term financial objectives over chasing returns.

Remember: These formulas are tools, not guarantees. Use them to make informed decisions and adapt to changing financial circumstances.

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