Income-to-Expense Ratio Tool
Get a clear picture of your financial health. This tool calculates your income-to-expense ratio, helping you understand where your money is going and identify opportunities to improve your savings.
Quick Use Samples
Your Monthly Finances
Your Financial Snapshot
Monthly Surplus / Deficit
$2,000
With a monthly income of $6,000 and total expenses of $4,000, your income-to-expense ratio is 66.7%. This leaves you with $2,000 in savings each month, which is a savings rate of 33.3%.
💰 Ready to grow your money?
- 🔹 Raiz: Microinvest your spare change
- 🔹 Swyftx: Trade crypto with confidence
We may receive a commission from our partners if you sign up through these links. This helps us keep our tools free.
What is an Income-to-Expense Ratio?
An income-to-expense ratio, also known as a debt-to-income ratio in a broader sense, measures the percentage of your income that is used to cover your expenses and debts. It's a fundamental indicator of your financial health, showing how much of your money is already spoken for and how much is left for savings and discretionary spending.
Behind the Formula
The calculator divides your total monthly expenses (including housing, transport, food, and minimum debt payments) by your gross monthly income. The result is expressed as a percentage. A lower ratio indicates better financial health and more financial flexibility.
Expert Insights
- While the '50/30/20' budget rule (50% needs, 30% wants, 20% savings) is a popular guideline, your income-to-expense ratio provides a more direct measure of your financial commitments. A ratio below 60% for essential expenses and debts is a good target.
- This ratio is a snapshot in time. It's most powerful when tracked monthly or quarterly, as it can quickly highlight 'lifestyle inflation' – the tendency for your expenses to rise as your income increases.
- Lenders use a similar metric (Debt-to-Income ratio) when assessing loan applications. Keeping your ratio low by controlling your expenses and paying down debt can improve your chances of being approved for a mortgage or other loans.
Actionable Tips
- If your ratio is high, focus on the 'big three' expense categories: housing, transport, and food. Small reductions in these areas can have the biggest impact on improving your ratio.
- Automate your savings. The best way to lower your expense ratio is to pay yourself first. Set up an automatic transfer to your savings account on payday, before you have a chance to spend the money.
- When you get a pay rise, commit to keeping your expense ratio the same. This means all the new income goes directly to savings and investments, rather than being absorbed by a more expensive lifestyle.
Real-World Examples
A Young Professional Starting Out
A graduate has a high ratio of 75% due to high rent in a capital city and student loan repayments. The tool helps them see they have very little financial flexibility and need to focus on increasing their income or finding cheaper housing.
A High-Income Earner with High Expenses
Someone earning a high salary is surprised to find their ratio is 85%. The calculator helps them realise that their large mortgage, two car loans, and expensive hobbies are consuming almost all of their income, leaving little for savings despite their high pay.
A Frugal Saver
A person who is focused on financial independence has an income-to-expense ratio of 40%. This means they are saving 60% of their income, putting them on a very fast track to achieving their financial goals.
Glossary of Terms
Gross Income
Your total income before any taxes or deductions are taken out.
Fixed Expenses
Costs that are the same each month, such as rent/mortgage payments and loan repayments.
Variable Expenses
Costs that can change from month to month, such as groceries, petrol, and entertainment.