Am I Doing Okay
A Financial Checkup Tool
Hey there, it’s your favorite engineer turned financial advisor!
I really did it — I quit my well-paying engineering job, bought more real estate, and started my own financial advising practice without ever setting foot in a financial firm. Oh, and I did this after obtaining not one, but two graduate degrees in engineering. Yeah, that’s me. Along the way, I stumbled upon something called the Certified Financial Planner (CFP®) certificate.
“What the hell is that?” I figured all I needed was a Series 65 license to sell financial advice. Regardless of my initial confusion, I decided that getting this certification would give me more credibility in the field — despite already semi-retiring before the age of 37.
Little did I know, earning the CFP® certification would involve taking 7 classes and then sitting for a 6-hour exam to prove that I know shit. My journey began at SMU in a class called General Planning Principles, and that’s where I learned about financial ratios.
Financial Ratios: A Missing Link in Personal Finance
Financial ratios are grouped into categories like liquidity, leverage, and efficiency. Coming from a background in engineering and investing, I was already familiar with using ratios to analyze systems and processes. But then I asked myself a question:
Why the hell aren’t these ratios being used to help everyday people understand their personal financial systems?
Even with the outdated financial planning software I briefly subscribed to, I noticed a glaring omission: no ratios! There’s no simple dashboard that helps financial advisors — or clients — get a clear, quantifiable snapshot of their financial health.
Think about it:
- Doctors use bloodwork.
- Dentists use X-rays.
- The Army uses physical fitness tests.
So, what do financial advisors use?
The sad truth is, most of them won’t even work with you unless you have $250,000 ready to invest so they can make their percentage. If you’re not buying insurance or investment products, you’re out of luck.
I believe it shouldn’t require signing a contract to see how well (or not well) you’re doing financially. Many people have a qualitative sense of their finances (“I feel like I’m doing okay”), but I’m saying that a quantitative view is just as critical. So, I made a simple tool that does exactly that.
Introducing the “Am I Doing Okay?” Tool
This tool uses your financial information to calculate five key financial ratios:
- Emergency Fund Ratio
- Current Ratio
- Savings Rate
- Debt-to-Income Ratio
- Investment Ratio
It’s designed to give you a financial checkup — like a speedometer helps you monitor your car’s speed.
Here’s a breakdown of each ratio and why it matters:
1. Emergency Fund Ratio
This ratio is arguably your most important ratio. It lets you know if you’re ready for Murphy’s Law (i.e., anything that can go wrong, will go wrong). It also acts as your first line of defense against high-interest debt. In some situations 3 month makes sense and in other situations 6 months makes sense. There is not a situation where 0 makes any sense.
Example: Let’s say your car’s transmission blows, and you don’t have money to replace it. You might turn to a credit card with a 24% interest rate. But if you had 3+ months of expenses saved, you could use your emergency fund instead — or charge it to the credit card and pay it off immediately without interest.
How the Tool Helps: It categorizes your emergency fund level as:
- Healthy: 3+ months of expenses
- Moderate: 1–2 months of expenses
- Needs Improvement: Less than 1 month of expenses
2. Current Ratio
Why It’s Important:
This ratio measures your ability to meet short-term obligations with liquid assets. It’s especially useful for spotting cash flow problems before they become unmanageable.
Formula: Current Assets ÷ Current Liabilities
Healthy Benchmark: 1.5 or higher
3. Savings Rate
Why It’s Important:
Your savings rate is the key to reaching financial independence. It tells you what percentage of your income is being saved for future goals, like retirement or major purchases.
Formula: Annual Savings ÷ Annual Gross Income
Healthy Benchmark: 15% or higher
4. Debt-to-Income (DTI) Ratio
Why It’s Important:
This ratio measures your debt load compared to your income. A high DTI means you’re over-leveraged and may struggle to meet obligations, while a low DTI indicates financial flexibility.
Example:
Imagine you’re shopping for a home. Most lenders require a DTI below 43% to approve a mortgage, but ideally, they prefer it to be under 36%. Knowing your DTI in advance can help you understand how much house you can afford and whether you need to reduce debt before applying for a loan. For instance:
- Your Monthly Gross Income: $6,000
- Total Monthly Debt Payments: $1,800
- DTI Calculation: $1,800 ÷ $6,000 = 30%
This would put you in the healthy range, giving you better chances of loan approval and potentially securing a lower interest rate. Without this ratio, you could waste time applying for loans that don’t match your financial profile.
Formula: Total Monthly Debt Payments ÷ Monthly Gross Income
Healthy Benchmark: Below 36%
5. Investment Ratio
Why It’s Important:
This ratio helps you assess whether your investments are on track for long-term goals. It compares your total investments to your annual income, with benchmarks based on career stage.
Formula: Total Investments ÷ Annual Gross Income
Healthy Benchmarks:
- 1x–2x income by mid-career (~Age 35–50)
- 5x+ income by retirement (~Age 65)
Conclusion: A Financial Checkup for Everyone
I designed the “Am I Doing Okay?” tool to act as a financial diagnostic tool that anyone can use. It provides a clear, quantitative snapshot of your financial health without the need for expensive software or high-net-worth requirements. Check it out!!!!
This is where working with a competent financial advisor — or educating yourself — can make all the difference. The engineer in me believes that tools like this should be mainstream and accessible to everyone. After all, if cars have speedometers, why shouldn’t your finances?
As an experienced engineer turned financial advisor, I bring a unique systems-based perspective to the world of finance. By analyzing your financial situation holistically, I help clients achieve their goals with strategies tailored to their needs and focused on measurable results. Don’t let outdated, linear approaches limit your path to financial freedom. Let’s build a smarter plan together. Contact me today to get started! linktr.ee/lampfinancial
