Financial Health Calculator

Frequently asked questions

How is the financial health score calculated?

The tool computes six common personal-finance ratios — debt-to-asset, current ratio, quick (acid-test) ratio, emergency-fund months, debt-service ratio (DSR) and savings rate — gives each a healthy / watch / at-risk light against its benchmark, and averages them into a 0–5 score. 4+ means good shape, 2–4 is okay but with warnings, and below 2 needs attention.

What does “liquidity for the short term, debt ratio for the long term” mean?

They are two time horizons for your debt. The liquidity ratio (liquid assets ÷ short-term debt) shows whether you can cover near-term obligations — here it uses the corporate accounting current-ratio standard of about 150–200% (1.5–2×). The debt-to-asset ratio (total liabilities ÷ total assets) shows your long-term burden — a healthy 20–50%. One short, one long; they complement each other.

Why isn’t a lower debt ratio always better?

A high debt ratio is dangerous, but below 20% can mean you’re overly conservative and using capital inefficiently — moderate, low-rate debt (like a mortgage) can amplify asset growth. 20–50% is generally seen as the sweet spot balancing efficiency and safety; above 75% is the genuine danger zone.

Why does the debt-service ratio (DSR) matter so much?

The debt ratio looks at the balance-sheet stock; DSR looks at the cash-flow — the share of income going to repayments. Even with high net worth, a high DSR (over 40%) means a lost income or spending spike can quickly leave you unable to keep up. Whether you survive a market crash while leveraged usually comes down to cash flow, not paper figures. Keep DSR under 36%.

How is “how much more you can borrow” estimated?

We apply two limits at once: the balance-sheet limit = total assets − 2× total liabilities (so the debt ratio stays ≤ 50% after investing the borrowed sum); the cash-flow limit converts “the extra monthly payment you can carry before DSR hits 36%” into a loan principal using your assumed rate and term. The suggested figure is the smaller of the two, because breaching either limit damages your fitness.

Why should the emergency fund sit outside your investments?

An emergency fund’s job is to stop you having to “sell at the bottom” when income stops or a big bill lands. If it’s mixed in with your investments, a crash can force you to liquidate and lock in losses. Keep at least 6 months of living expenses in liquid assets — and don’t count that money as part of the capital you borrow to invest.

Where do the 36% and 43% DSR thresholds come from?

Both come from long-standing mortgage-lending affordability standards. 36% comes from the US '28/36 rule' — housing costs no more than 28% of gross income and total debt payments no more than 36% — a traditional underwriting rule of thumb. 43% is the debt-to-income ceiling widely used in the US Consumer Financial Protection Bureau's mortgage Ability-to-Repay / Qualified Mortgage framework. This tool treats ≤36% as the safe green line, 36–43% as caution, and above 43% as danger. These are rules of thumb, not guarantees — bank practice and local rules vary, so use them as reference points, not hard limits.

What's the basis for the other thresholds?

Here are the bases for each threshold, mapped to public sources as far as possible. Emergency fund of 3–6 months: the US Consumer Financial Protection Bureau (CFPB) explicitly recommends 3–6 months of living expenses, and academically, Greninger et al. (1996, Financial Services Review) — a Delphi study of 156 financial-planning experts — established 'liquid assets ÷ monthly expenses' as a core measure of financial security. Savings rate ≥ 20%: matches the 20% for saving and debt repayment in the widely used '50/30/20' rule from Elizabeth Warren and Amelia Warren Tyagi's All Your Worth (2005); the same Greninger study also includes a savings-ratio benchmark. Liquidity ratio: this tool simply borrows the corporate accounting 'current ratio' (current assets ÷ current liabilities) standard of about 150–200% (1.5–2×) — originally a corporate-side metric. Note that the personal-finance liquidity measure research actually validates is the months-of-expenses one above (the emergency fund); the liquidity ratio here is just a supplementary read on short-term solvency. Debt-to-asset 20–50% is a common rule of thumb, while the 22× DBR is an explicit Taiwan FSC regulation. Overall, apart from DBR, treat these as reference benchmarks, not absolute standards.