Total Income – Total Expenses = Surplus
Cash management is the process of balancing income and expense timing so that the individual or household never faces a shortfall, even if income is adequate on paper.
This statement shows total income and total expenses for a given period — typically monthly or annually — and calculates the net surplus or savings.
Forecasting is the art of projecting future income and expenses based on data, assumptions, and evolving trends. It helps plan for upcoming changes (job shifts, inflation, school fees, etc.).
Net Worth = Total Assets – Total Liabilities
Liabilities | ₹ | Assets | ₹ |
---|---|---|---|
Home Loan | 12,00,000 | House | 18,00,000 |
Car Loan | 3,00,000 | Car | 3,25,000 |
Credit Card | 25,000 | Mutual Funds | 4,20,000 |
PPF | 2,80,000 | ||
Cash | 20,000 | ||
Total | 15,25,000 | Total | 28,45,000 |
Net Worth | ₹13,20,000 |
Formula: = Annual Savings ÷ Annual Income
Indicates what percentage of income is saved annually. Higher is better.
Example: ₹60,000 ÷ ₹6,00,000 = 10%
Formula: = Annual Expenses ÷ Annual Income
Indicates proportion of income spent. Desirable when < 70%.
Example: ₹5,40,000 ÷ ₹6,00,000 = 90%
Sum of all physical + financial assets: land, MF, PPF, gold, PF, etc.
Tip: Exclude personal-use assets like car or jewelry for goal analysis.
All outstanding loans (home, personal, credit card, etc.).
Tip: Use cautiously and ideally to create appreciating assets.
Formula: = Total Liabilities ÷ Total Assets
Indicates reliance on debt for asset creation. <50% is ideal.
Example: ₹13L ÷ ₹65L = 20%
Formula: = Total Assets – Total Liabilities
Represents true financial value. Should grow over time.
Example: ₹65L – ₹13L = ₹52L
Formula: = Net Worth ÷ Total Assets
Shows how much of asset value is owned outright. >70% is preferred.
Example: ₹52L ÷ ₹65L = 80%
Includes: cash, savings, liquid mutual funds, short-term FDs
Note: Real estate and equity MFs are not counted
Formula: = Liquid Assets ÷ Monthly Expenses
Ideal range: 4–6. Indicates readiness to face income disruption.
Example: ₹13L ÷ ₹1.5L = 8.6
Formula: = Financial Assets ÷ Total Assets
Higher ratio = more liquidity, flexibility, and income-generation
Example: ₹27L ÷ ₹50L = 54%
Formula: = Total Monthly EMI ÷ Monthly Income
Preferred under 35%. High ratio = higher risk of financial stress.
Example: ₹60K ÷ ₹1.5L = 40%