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# Savings ratio

## by Prof. Simply Simple, Finance Professor at Tata Asset Management Ltd on Aug 22, 2012

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## Savings ratioPresentation Transcript

• Understanding Savings Ratio TM – By Prof. Simply Simple We had discussed recently about the liquidity ratio and I hope you understood the explanation. We would now discuss about the “Savings” ratio. So what is savings ratio?
• It’s a very simple concept and standsfor the amount of money that one savesat the end of every month expressed asa percentage of the monthly earnings
• Just as the measure of our blood pressuregives us an idea about our health, in thesame manner “savings ratio” gives us anindication about our financial health
• So how is saving’s ratio calculated?
• 1. It is a very simple calculation2. All you need to do is divide your savings per month by the income per month3. Let’s say your income per month is Rs 100,000 and your savings per month is Rs 10,0004. Then your saving’s ratio is (10,000/100,000)%=10%
• How much should our savings ratio be?
• The percentage of saving’s ratio depends uponone’s age. For a young person of 30 years who haslifestyle and EMI expenses a savings ratio of 10%would be good enough. As one grows older and assalary level goes up, the savings ratio of 25%would be reasonable. However after 50 when onewould’ve finished the EMI cycles a savings ratio ofmore than 30% would be healthy. In contrast asavings ratio of less than 5% would suggest thatone’s financial health is fragile
• Hope this lesson has succeeded in clarifying the significance of “savings” ratio Please give me your feedback at professor@tataamc.com
• DisclaimerThe views expressed in these lessons are for information purposes only and do not construe to be of any investment, legal or taxation advice. The contents are topical in nature & held true at the time of creation of the lesson. They are not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this presentation will be at your own risk and Tata Asset Management Ltd. will not be liable for the consequences of any such action.Mutual Fund investments are subject to market risks, read all schemerelated documents carefully.