What's Your Golden Ratio?
Sarah Newcomb, PhD
I help people build lives they love with the resources they have.
To estimate your Golden Ratio, you can use this fun little tool: https://morningstar.outgrow.us/morningstar-385
A few years ago, I worked with the incomparable Shelby Bower (she, her) on a financial planning tool for 晨星 . During a brainstorming, she split cash flow into three buckets: Past, Present, and Future, and. my brain exploded. With this simple idea, she had put the mental time horizon concept into practical use in a way that I hadn't thought of. Collaboration really is wonderful when people bring their imaginations to the table.
The big idea is that EVERY dollar that comes into your life is then sent in one of three 'directions' so to speak. Some goes to paying off past purchases, some is consumed by your present lifestyle, and some (I hope) is put toward creating future income streams. The proportions you set can tell you a lot about the health of your cash flow, and the trajectory of your net worth over time.
I call these proportions your GOLDEN RATIO. It comprises your debt-to-income ratio, your consumption rate, and your savings rate into one useful metric. If used well, it can replace all the itemizing and agonizing of line-item budgeting because as long as your debt is healthy (Past = < 30%) and your savings goal is met (Future = > Your target) then you can spend the rest with confidence and forget about needing to track every penny.
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2 年Sarah normally people do practice this, albeit unconsciously. With a deliberated approach connected to a well-defined plan of action can go a long way. Cash is a valuable resource, if used wisely can create wonders in one's life. Many such plans used to create this situation.
Financial investment and freedom through indulgence: A new vision for wealth for the new individual, especially women
2 年Great piece! I love the simplicity..Thank you for sharing Sarah Newcomb
Helping people take control of their financial future | Certified Money Coach (CMC)? | Financial Literacy Educator | Speaker
2 年Interesting and simple perspective
Probably the #1 leading consultant for cashflow planning
2 年Wow I took the test, insightful and a different lens to view spending and saving, thanks for sharing this.
VP, Investor Relations at Uplifting Capital | Private Markets Impact Investing
2 年I feel like cash flow is often overcomplicated. I love the way you categorize this into a practical use. It’s such a unique (and tangible) way to think about the concept, especially for people outside the finance world