Book Review and Give Away: Your Money Ratios, 8 Simple Tools for Financial Security

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I recently read Your Money Ratios: 8 Simple Tools for Financial Security by Charles Farrell. I’ll be honest, these days I read everything with an air of skepticism and although it took me several pages to get engaged I could tell I had found someone on my wave length. First a bit about Charles: He’s an investment advisor in Denver, Colorado. He also writes the “Retirement Roadmap” for the CBS Moneywatch site. Previous to his work as an investment advisor he was a tax attorney. So the man knows his business.

Book Overview

Essentially “Your Money Ratios” covers most aspects of the personal finance world delving into saving, social security, debt, investing, stocks and bonds, insurance and how to get help. The novel approach is applying a set of relatively simple ratios to determine how much and of what type of the various components you need. Not to give away all of the ratios but for example with regards to Mortgage debt he lists some ratios of income as compared to the size of a mortgage you should have on your home.

Mortgage Debt

Age Mortgage to Income Ratio
25 2.0
30 2.0
35 1.9
40 1.8
45 1.7
50 1.5
55 1.2
60 0.7
65 0.0

So let’s take a theoretical example using your yearly income which is $100,000 just for ease of calculation. If you are 33 taking your income of $100,000 yearly multiplied by your Mortgage to Income Ratio of 2.0 you should not have more than $200,000 wrapped up in your mortgage. A year or two ago that would be laughable and would have been derided for being too conservative but based on our recent corrections that makes good sound sense.

The book goes on to provide 8 simple ratios for determining Retirement Savings requirements, mortgage debt, education debt, investment distributions, disability insurance requirements, life insurance requirements and long term care ratios. It’s a relatively simple way to check how you are doing in the key components of your financial life.

Who’s it For?

Your Money Ratios is targeted squarely at the beginner to intermediate reader looking to get a handle on their fiscal fitness. There’s enough information to get you going and give you some direction with most aspects of your financial life. His recommendations are sound. He doesn’t naturally assume that social security is going to disappear tomorrow and includes that in retirement planning which is a nice change of pace. It’s straight math designed to get you to a place where you can retire and live comfortably.

Who’s it Not For?

If you would classify yourself beyond a beginner in personal finance most of this information is not going to be new to you. Further if you are looking for some motivation beyond basic arithmetic to get you headed in the right direction this is not the book you’re looking for. There are no inspirational stories of people who’ve used these ratios to meet their financial goals. No tales of near bankrupt couples paying off all of their debt to live a life they’ve only dreamed of. No this is straight up solid advice without much frill and can be a bit dry at times. But face it personal finance is a little dry.

My Recommendation

Honestly I really enjoyed reviewing Your Money Ratios. His advice is good and guides you around the idea of being a capitalist or a laborer. Essentially getting your money working for you or spending all of your time working for your money. For instance does taking out $250,000 in student loans help you to transition from a laborer to a capitalist? No not if you are going to be making $35,000 a year for the next ten years. It’s very simple but it works. His detailed section on retirement planning also got me to thinking about my own retirement goals. It’s challenged my notion of what balance of stocks and bonds makes sense in my portfolio. If you are looking at a good starter that covers the spectrum of personal finance this is a great book.

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