Gross Savings Ratio = Total Savings / Gross Income

This is probably the most common financial ratio people calculate or track even if they don’t know they are doing so.  Anytime you’ve got a 401(k) program (or similar profit sharing program) where you designate a percent of your monthly income to be invested, you are setting your gross savings ratio for the month.

For example, if you make $5,000 (gross) a month and make a $500 contribution to your 401(k) your gross savings percentage would be 10%.  However, something you may want to keep in mind is that if your company has a matching program your ratio would actually be higher.

Assuming the same facts as above, with the additional assumption that your company offers a 50% match on the first 5% contributed, you would have an additional $125 of contributions ((5,000 * 5%) * 50%).  With these additional contributions your gross savings ratio would equal 12.5% (625 / 5,000).

Savings Ratio = Total Savings / Net Income

Another way to look at savings as a percentage of your income is to compare it to your net income rather than your gross income.  Although I prefer to track my savings as a percentage of gross income, there are situations where tracking savings versus net income may be more beneficial.

One reason that tracking the net savings ratio may be a better indicator of your overall savings percentage is because with some employers require a number of paycheck withdrawals that are out of the employee’s control.  For example, if you are required to carry disability or life insurance through your company you may not look at these funds as truly disposable/discretionary  income.  When calculating your savings percentage you may not want to include these in the denominator.

A good rule of thumb is to keep these ratios above 10% and preferably above 15%.  The higher the ratio the better.

*For an explanation of the other ratios I use, check out my other financial ratio posts (Liquidity Ratios, Debt Ratios, Saving Ratios, & Networth Ratios).

#11 Titanic – $150 Million
The sinking of the Titanic is possibly the most famous accident in the world. But it barely makes our list of top 10 most expensive. On April 15, 1912, the Titanic sank on its maiden voyage and was considered to be the most luxurious ocean liner ever built. Over 1,500 people lost their lives when the ship ran into an iceberg and sunk in frigid waters. The ship cost $7 million to build ($150 million in today ’s dollars).

#10 Tanker Truck vs Bridge – $358 Million
On August 26, 2004, a car collided with a tanker truck containing 32,000 liters of fuel on the Wiehltal Bridge in Germany. The tanker crashed through the guardrail and fell 90 feet off the A4 Autobahn resulting in a huge explosion and fire which destroyed the load-bearing ability of the bridge. Temporary repairs cost $40 million and the cost to replace the bridge is estimated at $318 Million. 

#9 MetroLink Crash – $500 Million
On September 12, 2008, in what was one of the worst train crashes in California history, 25 people were killed when a Metrolink commuter train crashed head-on into a Union Pacific freight train in Los Angeles. It is thought that the Metrolink train may have run through a red signal while the conductor was busy text messaging.. Wrongful death lawsuits are expected to cause $500 million in losses for Metrolink. 

#8 B-2 Bomber Crash – $1.4 Billion
Here we have our first billion dollar accident (and we’re only #8 on the list). This B-2 stealth bomber crashed shortly after taking off from an air base in Guam on February 23, 2008. Investigators blamed distorted data in the flight control computers caused by moisture in the system. This resulted in the aircraft making a sudden nose-up move which made the B-2 stall and crash. This was 1 of only 21 ever built and was the most expensive aviation accident in history. Both pilots were able to eject to safety. 

#7 Exxon Valdez – $2.5 Billion
The Exxon Valdez oil spill was not a large one in relation to the world ‘ s biggest oil spills, but it was a costly one due to the remote location of Prince William Sound (accessible only by helicopter and boat). On March 24, 1989, 10.8 million gallons of oil was spilled when the ship ‘ s master, Joseph Hazelwood, left the controls and the ship crashed into a Reef. The cleanup cost Exxon $2.5 billion. 

#6 Piper Alpha Oil Rig – $3.4 Billion
The world’s worst off-shore oil disaster. At one time, it was the world’s single largest oil producer, spewing out 317,000 barrels of oil per day. On July 6, 1988, as part of routine maintenance, technicians removed and checked safety valves which were essential in preventing dangerous build-up of liquid gas. There were 100 identical safety valves which were checked. Unfortunately, the technicians made a mistake and forgot to replace one of them. At 10 PM that same night, a technician pressed a start button for the liquid gas pumps and the world’s most expensive oil rig accident was set in motion. Within 2 hours, the 300 foot platform was engulfed in flames. It eventually collapsed, killing 167 workers and resulting in $3.4 Billion in damages. 

#5 Challenger Explosion – $5.5 Billion
The Space Shuttle Challenger was destroyed 73 seconds after takeoff due on January 28, 1986 due to a faulty O-ring. It failed to seal one of the joints, allowing pressurized gas to reach the outside. This in turn caused the external tank to dump its payload of liquid hydrogen causing a massive explosion. The cost of replacing the Space Shuttle was $2 billion in 1986 ($4.5 billion in today’s dollars). The cost of investigation, problem correction, and replacement of lost equipment cost $450 million from 1986-1987 ($1 Billion in today’s dollars). 

#4 Prestige Oil Spill – $12 Billion
On November 13, 2002, the Prestige oil tanker was carrying 77,000 tons of heavy fuel oil when one of its twelve tanks burst during a storm off Galicia , Spain .. Fearing that the ship would sink, the captain called for help from Spanish rescue workers, expecting them to take the ship into harbour. However, pressure from local authorities forced the captain to steer the ship away from the coast. The captain tried to get help from the French and Portuguese authorities, but they too ordered the ship away from their shores. The storm eventually took its toll on the ship resulting in the tanker splitting in half and releasing 20 million gallons oil into the sea. 
According to a report by the Pontevedra Economist Board, the total cleanup cost $12 billion. 

#3 Space Shuttle Columbia - $13 Billion
The Space Shuttle Columbia was the first space worthy shuttle in NASA’s orbital fleet. It was destroyed during re-entry over Texas on February 1, 2003 after a hole was punctured in one of the wings during launch 16 days earlier. The original cost of the shuttle was $2 Billion in 1978. That comes out to $6.3 Billion in today’s dollars.. $500 million was spent on the investigation, making it the costliest aircraft accident investigation in history. The search and recovery of debris cost $300 million.  In the end, the total cost of the accident (not including replacement of the shuttle) came out to $13 Billion according to the American Institute of Aeronautics and Astronautics.. 

#2 Chernobyl - $200 Billion
On April 26, 1986, the world witnessed the costliest accident in history. The Chernobyl disaster has been called the biggest socio-economic catastrophe in peacetime history. 50% of the area ofUkraine is in some way contaminated. Over 200,000 people had to be evacuated and resettled while 1.7 million people were directly affected by the disaster. The death toll attributed to Chernobyl, including people who died from cancer years later, is estimated at 125,000. The total costs including cleanup, resettlement, and compensation to victims has been estimated to be roughly $200 Billion. The cost of a new steel shelter for the Chernobyl nuclear plant will cost $2 billion alone. The accident was officially attributed to power plant operators who violated plant procedures and were ignorant of the safety requirements needed. 

#1 Electing Obama President - $800 Billion in the first  month….. (and counting)

I’m not trying to make a political statement here, but I am disgusted by the financial irresponsibility of our federal government and corporate America.

With all our forefathers did to give us the freedoms we enjoy today, I am extremely proud to call myself an American.  I pray the leaders of this country, whether black, white, liberal or conservative, will not let their egos or greed get in the way of leading us out of our current economic recession.

Debt Ratio = Total Liabilities / Total Assets

The debt ratio tells you what percentage of your assets is financed with borrowed money.  For example, if the only asset you owned was your home and you purchased it for $100,000 by borrowing $95,000 and putting $5,000 down, your debt ratio would be 95% ($95,000 (total liabilities) / $100,000 (total assets)).  In essence, 95% of your assets have been financed through debt.  The remaining 5% would be the “equity” you own in the home.  If the ratio is ever above 1, it means you have negative networth.  Having a negative networth means that if you were to sell all of your assets for what they are worth, you would not have enough to cover your debt.

As you track this ratio, you should see a downward trend.  The closer the ratio is to zero, the better.  When the ratio hits zero, you are debt free.  Many investors may argue that you don’t want this ratio at zero because that means you’re not using the power of leverage.  I agree there is a time and place for debt and the use of leverage, however, I also know there is nothing that can substitute freedom from debt.

Long-term Debt Coverage Ratio = Monthly Living Expenses / Monthly Debt Payments

The long-term debt coverage ratio tells you how many times over you could pay debt obligations based your monthly living expenses.  I think a more useful way of looking at this ratio is to reverse the positions of the two expenses in the equation (Monthly Debt Payments / Monthly Living Expenses).  This calculation actual gives you a percentage of your current monthly expenses that are made up of long-term debt.

For example, if your total monthly expenses equal $4,500 and your monthly payments on long-term debt obligations equals $1,950, your Long-Term Debt Coverage Ratio would equal (4,500/1,950) 2.31.  Perhaps better said, 43.33% (1,950/4,500) of your monthly expenses are made up of long-term debt obligations.

Referring to the original equation, the higher the ratio the better.  A higher ratio indicates that you could cover debt payments for a longer period of time if you had a loss of income.  As you track this ratio you should see an upward trend.  If you look at the ratio by the 2^nd method you’ll want to see it as low as possible.

*For an explanation of the other ratios I use, check out my other financial ratio posts (Liquidity Ratios, Debt Ratios, Saving Ratios, & Networth Ratios).

This is usually when I stock up on his New York Times Bestselling “The Total Money Makeover”.  It may be lame, but I’ve found it to be a perfect wedding and graduation gift.  Most people have very little knowledge as to how to manage their money and financially prepare for the future.  In “The Total Money Makeover” Dave lays out a very simply to follow, 7 step plan, to eliminate debt and become financially independent.  It’s not a get rich quick system, but if followed, it will lead you to financial freedom.  I don’t necessarily agree with every concept in the book, but he does have some good points and lays out a plan anyone could follow.

$10 DEALS!!!

However,  after reading the fine print there aren’t any major stipulations.  They require that you open the account with at least $50 and keep the account opened for a minimum of 6 months.  The $50 bonus will be credited immediately upon opening the account.  The account has no monthly balance requirements and no monthly services fees.   One downfall may be that the free checking account is a non-interest bearing account so this won’t be a place to store much money.  But for me it will work great, I will “invest” $50 for six months and get a 100% return on my money….not bad.

Here is a link to application

Current Ratio = Current (liquid) Assets / Current Liabilities

The current ratio tells you how many times over you could pay off your current liabilities with the cash you have on hand.  The more times you can pay off your current liabilities, the better off you are financially. A ratio greater than 2 is recommended. It is also important to track the trend of this ratio; an upward trend is recommend.  If this ratio is going down, you need to make changes to improve your financial situation.

Living Expense Covered Ratio = Current Assets / Monthly Living Expenses

I also like to refer to this ratio as the emergency fund ratio.  The living expense covered ratio tells you how long you could survive if you were to loose all of your current sources of income.  This is a good measure to see how long you could sustain financially on your current emergency fund assuming the same level of lifestyle.  However, this is a conservative estimate considering most people would scale back their standard of living with the loss of income sources.

When calculating your monthly living expenses keep in mind that with the loss of a job you may get rid of certain expense i.e. taxes, charitable giving, savings, etc.

Once again, you should track the trend of this ratio.  It should be increasing on a steady basis.  Ideally you should have a ratio of between 3 and 6 depending on the volatility of your job.

*For an explanation of the other ratios I use, check out my other financial ratio posts (Liquidity Ratios, Debt Ratios, Saving Ratios, & Networth Ratios).

I ran across an article about how Michael Vick went from multi-millionaire to bankrupt in less than 2 years with one of those years spent behind bars.  I’ve listed some of the the more interesting expenses below that were part of his “statement of financial affairs” filed on November 13th.

Amount of deal Vick signed with the Falcons in 2004: $130 million

Pay, per hour, Vick gets for washing pots and pans at Leavenworth Prison: 12 cents.

Amount paid for an Easter egg hunt: $700

Amount of check labeled “chump chang”: $1,000

Amount Vick was sentenced to pay to house and care for the 47 pit bulls: $928,073

Number of cars Vick owned at one time: 9, including the ‘07 Land Rover for his fiancée; the ‘07 Cadillac Escalade for his fiancée’s mother; the ‘07 Land Rover for his brother Marcus; the ‘08 Mercedes Benz for his financial advisor, David Talbot; the ‘06 Cadillac DTS for his pal Rodney White; and the ‘07 Ford F-150 he drove himself.

Sticker price of the ‘07 Infiniti Vick bought for his fiancée to keep in Leavenworth so she has something to drive while visiting him in prison: $65,000

Amount mysteriously categorized as “miscellaneous” over two years: $3.5 million

Vick’s ongoing cost to support his fiancée, their two daughters, his brother, his mother, a former girlfriend and his son with her, per month: $20,000

Amount Vick still owes the Atlanta Falcons from his signing bonus: $3.75 million

Amount Charles Reamon, Jr., a friend Vick put in charge of his finances while in prison, went through: over $3 million……….0% has been accounted for

Here’s the full statement of financial affairs.

However, according to Ford, it does not anticipate a liquidity crisis in 2009, “barring a bankruptcy by one of its domestic competitors or a more severe economic downturn that would further cripple automotive sales.” The loan would provide a safeguard against worsening conditions, the company said.

Another point that I found interesting was that they plan on selling their 5 corporate jets after the CEO’s of all three automakers flew to Washington in separate jets to ask for financial assistances.  That just makes me laugh.

It was good to see congress force these auto makers to give a better explanation of why they needed this money and what plans they have to become profitable and repay the money….I wish that would have happened with some of the earlier bailouts. If you are intersted, here is the rest of the article

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When you click the link to see the deal be sure to click the “see all plans available” link above the checkout button to see all of the subscription plans available.  Offer valid thru December 22, 2008.

As always, be sure to read the fine print, here are a few of the highlights.

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Although it’s been almost 5 months since my last post I do plan on updating my networth statements for the months I missed so you can still see the progress we were able to make during the downturn of the financial markets.  Therefore, I may adjust a few dates so it looks like I posted in previous months .

Thanks for your patients and have a wonderful Thanksgiving.