If a football team uses a 3-4 defense, that is a ratio of 3 down linemen to 4 linebackers.
If a baseball player has a batting average of .333, that means he gets a hit in one out of every three at bats. That is a ratio of 1:3.
If you have a gear ratio, that tells you the relationship between the number of teeth on two gears.
Two cups of flour to one cup of sugar is a ratio, 2:1.
Ratios Are Easy
A ratio is just a simple way of summarizing the relationship between two things. Ratios are used in all walks of life because they’re easy.
The ratios I have developed are for use in personal finance, and they provide guidance on the basic relationship between your income, savings, debt, investments and insurance.
Just apply the ratio to each topic and you can get instance guidance on:
- How much you should be saving each year,
- How much you should have saved at your age,
- How much debt you can carry,
- How to manage your investments, and
- How much insurance you may need.
To see an example of how a ratio works, click here.