When You SHOULDN’T Worry About Money

Everyone deals with stress in their own way, but there are certain things that just aren’t worth worrying about. If we concern ourselves with every detail, we add on unneeded stress and waste our times worrying when we could be doing a million other things that make us much happier.

Awhile ago, Financial Samurai reviewed Charles Farrell’s “Your Money Ratios,” a book detailing the different ratios we should pay attention to and how these ratios are better indicators of wealth and with the correct ratios, we will be able to retire comfortably and live a high quality life after cutting back on work.

While I love the idea of having a capital to income ratio of 12 by age 65 ($1.2 million in capital if you make $100,000), I think for some people, worrying about your ratios simply isn’t worth it.

There are two times when I think worrying about ratios is a waste of energy and we should be concentrating on other things. The first is if you are in young. For those of us in our 20s, we have been working for only a relatively short period of time, and are at a time when we are dealing with student loan debt.

Basically, we haven’t had enough time to build capital, and therefore, no matter how well we are doing in comparison to our peers, are ratio will be very low and thus a bad indicator. We are only at the beginning of our earning potential, but over time, it will become more apparent what our goals are and how much we’ll need in retirement.

The other situation in which it’s a waste of time to worry about ratios is when we are in debt. When our net worth is below 0, the ratios are thrown out of whack. If Bob were to make $75,000 a year but have $80,000 in debt, his debt ratio would be very high. Instead of worrying about his financial situation, he should figure out a plan to get out of debt as quickly as possible. Once he does that, he can start building wealth and his money ratios will start becoming more meaningful.

Readers, what are your thoughts on money ratios? Should we be concerned with them or should we relax and focus on our individual situations and the more important things?

12 Responses to When You SHOULDN’T Worry About Money

  1. Money Beagle says:

    Can’t argue with any of this. I think when you’re just starting off, it’s important just to track your progress. If you’re in the negative, you should see yourself moving in the right direction after a year, and look for an even bigger move the year after. I don’t know that tracking ratios is important, but it’s definitely a great idea to build a solid foundation when you’re younger.
    .-= Money Beagle´s last blog ..Detroit Wants To Shrink Itself, What Do You Think? =-.

  2. In the two scenarios you describe, then it’s definitely not worth thinking about your future and retirement. Rather, worry about getting out of debt and establish a solid foundation for your future.

    That said, he has ratios for every stage in your life starting after 24. Like 2-3X Capital ratio by the time you turn 30.

    Cheers, Sam
    .-= Financial Samurai´s last blog ..The Benefits of Debit Cards Over Cash and Credit Cards =-.

    • Daniel says:

      @Financial Samurai, I do think it’s nice to be able to take a look at your situation OVER TIME. Every situation is different so at any one point in time there are too many variables. But over time, we should be able to see if we’re improving, on track, or need to make some changes.

  3. sahmCFO says:

    Money Ratios is my case (still in debt) would definitely be putting the cart before the horse. Once we get close to being debt free (except for the house) I plan on researching advice like “money ratios”. But for now, I don’t want that single focus being complicated by future plans.
    .-= sahmCFO´s last blog ..The Scarlet “D” =-.

  4. I don’t look at ratios at all. I keep up with our monthly net worth and worry about specific goals…ratios just seem like a waste of time since I know how we are doing overall. Why worry about some calculation?

  5. Jeff says:

    I love math, but in the two examples math(ratios) just doesn’t matter. You know my situation and I couldn’t care less about the ratio. Squat/Squat still equals Squat. At least in my world. I can see using ratios as a basic guide, but that’s about it. There are way too many variables in everyone’s life to have rigid ratios to stick to.
    .-= Jeff´s last blog ..Zero Debt Christmas 2010 =-.

  6. MyFinancialObjectives says:

    I read this book and thought it was only OK. I felt that some of the topics he skimmed over a bit too lightly, while others he explained a little too much. But to each his own.

    I agree that worrying about money can indeed cause way to much stress. However, it’s completely understandable in how it would cause such problems. It plays such a huge part in our lives, that it naturally warrants such a response. I think keeping in mind your ratio is a good idea, though definitely do not begin to stress out if you are not exactly meeting you current objective….
    .-= MyFinancialObjectives´s last blog ..Lesser Known Link Rally =-.

  7. Little House says:

    Good point. My biggest problem with the whole ratio thing, is figuring out the math! As soon as I see a multistep problem, I freeze. Funny, because I really am beginning to like math.

    I also agree that anyone that is still paying off their debt should focus their energy on that, not their wealth ratio!
    .-= Little House´s last blog ..Tuesday Tips, Week 4 =-.

  8. Kristine says:

    Just like your website name implies – Sweat only the big stuff! The ratio idea is nice but is it applicable to the masses? Do what works for you…and focus on financial freedom or building your business or creating new sources of income.

  9. Joe Plemon says:

    I haven’t read the book, so I am not qualified to comment specifically on it. However, I will take the word “worry” a bit further…I don’t think you should EVER worry about money. I am probably splitting hairs, but I see a difference between worry and concern. Worry paralyzes while concern produces action. Worry brings on ulcers; concern which leads to action alleviates stress.

    So, whether we call it worry or concern, I agree that one is better served by focusing on his specific financial situation without getting in a tizzy about less pertinent issues.
    .-= Joe Plemon´s last blog ..With Apologies to Dave Ramsey, One Size Doesn’t Always Fit All =-.