“I am heavily insured and that is most important.”
“I have a lot of savings both in FD and bank account.”
“I invested in many properties and unit trust.”
“I know how to invest in share market and Forex.”

Are you financially healthy if you are one of the above? Or are you financially healthy if you are all of the above? In our current society, the upper class people are frequently stereotyped as crazy risk takers. However, a lot of these uber-rich people are actually risk averse and they make more cautious decisions compared to the general population. They have very diversified portfolio and they only act upon “calculated risk”, not pure risk.

As the saying goes, “It is not a gamble if you do it right.” It does not matter on which investment instruments to invest in to generate the most return for you. More importantly is how you handle your money and your financial portfolio as an overall. So, how do you determine if you are financially healthy? Let’s find out in this article.

There will be 3 statements analysis to check on your financial health – Cash Flow statement, Net Worth statement and Ratio Analysis.



A personal cash flow statement helps measure your cash inflows and outflows for a period of time. Your net cash flow can be determined by subtracting your cash outflows from your inflows. This will then reflect if you are managing your money well or if you need to re-allocate your cash flow. A positive net cash flow is important to ensure you are financially healthy.

Cash Inflow generally includes any form of take-home income that you earn from your job and other side jobs. You must also include the interest earned from your savings, return earned from investments (properties, stocks, bonds and businesses), capital gain from the sale of your investments and as well as allowance from your husband.

Cash Outflow includes any form of expenses. These may include rent or mortgage payments, car loan, petrol, toll, utility bills, insurance, groceries, food, household items, parents’ allowances, entertainment and holiday expenses.



A personal balance sheet provides you an overall position of your net worth at a specific period of time. Your net worth is the difference between your total assets (what you own) and your total liabilities (what you owe). This is important to determine what you own after everything you owe has been paid off.

Assets can be classified into:
1) Liquid assets can be sold or turned to cash easily without losing value. These includes savings account, fixed deposit, money market accounts, cash & equivalent, and insurance cash value.

2) Fixed assets include larger assets such as properties, furniture & fittings, jewelry, collections and cars. The market value for these assets must be determined and you can refer to the recent sale prices for reference.

3) Investment assets include bonds, stocks, mutual funds, real estate and EPF. The market value for these investments must also be determined.


Liabilities can be classified into:
1) Current liabilities are usually short-term debts that can be settled within a year. These include credit card outstanding, income tax payable, personal overdraft and retail loan.

2) Long term liabilities, on the other hand will include debts that will take more than a year to settle. These will include car loan, mortgage, credit card repayment, personal loan and education loan.



Although most people will find themselves having a positive cash flow statement and balance sheet (which is a good thing), but this does not determine if they are financially healthy. Therefore, as we bring both the cash flow and balance sheet statement together, a few personal financial ratio must be used to check if you’re financially healthy.

1) Savings Ratio

This is the simplest ratio which gives you an insight about how much you can save every month and how you control your monthly spendings. The higher the ratio, the better your money management.

Saving Ratio = (Savings + Monthly Surplus) / Gross Income

2) Debt Service Ratio

This ratio is important to determine if the proportion of debt repayments compared to your monthly take-home income is at a healthy level. This is the ratio that is usually used by the banks in determining your loan approval. A healthy DSR must not exceed 40%.  The lower the ratio, the better the debt management state of an individual.

Debt Service Ratio = Total Monthly Loan Repayments / Total income

3) Life Insurance Coverage Ratio

This ratio is important to determine if the amount of life insurance coverage you have is adequate to replace your take-home income in circumstances of death, total permanent disability and 36 critical illness. A favorable benchmark would be a good 5 to 10 years.

Life Insurance Ratio = Total Existing Critical Illness Coverage / Total Annual Take-Home Income

4) Liquidity Ratio

Liquidity ratio will help you to determine if you have sufficient emergency fund to cover your monthly fixed expenses when facing any financial emergency difficulties such as loss of employment, illness or family issue. An ideal liquidity ratio ranges from 3 to 6 months.

Liquidity Ratio = Cash or Cash Equivalents/Monthly Expenses

5) Standby Liquidity Ratio

Similarly, standby liquidity ratio helps to determine if your liquid investment assets are sufficient to be turned to cash to cover your monthly fixed expenses when facing financial emergency difficulties. An ideal standby liquidity ratio ranges from 3 to 6 months.

Standby Liquidity Ratio = Liquid Investment Assets / Monthly Expenses

6) Debts-to-Assets Ratio

This ratio can help to give a relative measure of your total assets against your liabilities to determine if you are facing or close to face any solvency problem. This ratio is very important especially when you are planning to take a new loan. A favorable debts-to-assets ratio must not exceed 50%.

Debts-to-Assets Ratio = Total Liabilities / Total Assets

7) Solvency Ratio

Solvency ratio indicates your ability to repay all  your outstanding debts using existing assets in case of unforeseen events. A solvency ratio of more than 50% is considered to be good.

Solvency Ratio = Net Worth / Total Assets


Staying true to our tag line “Financial Matters Made Easy”, we have a template of all the above financial statements with preset formulas prepared for your convenience. Hence, you don’t have calculate all the ratios above manually. Before that, let us use a simple case study to better understand the statements and ratio analysis.



Luke is an employed civil engineer and the sole breadwinner of the family as his wife takes care of his children. Let’s take a look if Mr Luke is financially healthy based on the below analysis!

The above ratio analysis indicates that although Luke has a high net worth and assets, he has to be careful with his liabilities as he has an unhealthy debt service ratio and debts-to-assets ratio. In addition, he has very poor standby liquidity ratio which means that most of his investments cannot be turned into cash easily during financial emergencies. The analysis also shows that Luke has to increase his insurance coverage as his existing insurance can barely sustain even one year of his income. Luke is the sole breadwinner of the family and he must definitely put more emphasis in this aspect.

As promised, here is the link to download the template of cash flow statement, balance sheet and financial ratio. Do check your financial health! Just key in your relevant information in the cash flow statement and balance sheet tab. Once you are done, the financial ratio results will be tabulated automatically.

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