So, let's summarize where we're at with this particular family then.
So, this is the way we kind of want to think about these.
We ran these numbers.
The math is tricky sometimes.
But the truth is, what we're really interested in is the interpretation.
Different types of software, we may use for
money management may actually calculate the ratios for us.
So, what we're interested in is what do the ratios mean.
So the family right now has insufficient capital to meet its current obligations.
That's of concern to us for sure.
They're not adequately prepared for an emergency, at least in terms of assets.
Now how would we interpret that otherwise?
Well, maybe there's additional support they have, or resources others would have.
Maybe they have family that could step in and help out.
Maybe they would utilize credit in the case of an emergency.
So there may be other options, should something really happen to the family.
But the idea is that we're looking for
this notion of self-sufficiency as much as possible.
Now the family definitely has a high debt load, too.
This presents issues on two fronts.
It's certainly concerning with the level of debt, relative to assets.
The amount of debt relat, the amount of debt payments relative to
income is concerning, not as concerning as we see the level of debt being.
But that may mean that we have to start increasing our payments or
finding ways to think about debt, so that we don't continue it to be a problem.
One thing's for
sure, this family doesn't have a lot of room to take on any more debt.
So, that's one of the things we can look at from these ratios.
Their debt to asset ratio's too high.
And their debt service, or
their debt payment to income ratio, is definitely higher than it should be.
Not dangerously high, but any more debt piled onto that,
is going to be of concern, for sure.
Now investments are doing okay for them but they probably need to be saving more.
So as we looked, if we looked at the two balance sheets, we saw that
their investment assets definitely went up, And you know, we could see that
a family potentially could be saving more, but this is a difficult balance, right?
Because, here, they have a lot of money going to debt, they need,
they need to pay off their debt, so, it'll be a tricky question.
Do they want to save, and invest more?
Do they want to take that money they might save and it, use to save and
invest more, and use it to pay down their debt?
You'll find, with me, that, right,
they're both kind of two sides of the same coin, in some ways.
Right?
Reducing debt increases our net worth.
Saving more money increases our net worth.
So, in either case, right, there can be simple reasons why we do one or the other.
How much the debt costs us, if it, if it,
the debt costs us more, for example, than what we're earning on our investments,
then that can be sort of an easy question for us to answer.
So, we can tend to look at some simple analysis for that.
And use a little bit of logic and common sense to try and
figure out the best course of action would be for a family.