Leverage is a ratio that measures total debt against total assets. Investors use leverage to determine the risk of their investment in a company, but you can also figure leverage for your personal finances.
- Step 1: Learn the average ratios by income. Households earning less than $20,600 per year have an average of 13.5 percent, while the ratio for those earning between $56,600 and $98,199 is 25.3 percent.
- FACT: In 2009, the average income in the United States was $50,233, while the average credit card debt per household was $9,797.38.
- Step 2: Know the average ratios for your age, which generally decline over time. For example, the average ratio for someone under 35 is 44.3 percent, while the average ratio for those between the ages of 65 and 74 is 6.5 percent.
- TIP: Move the decimal point two places to the right to find the percentage.
- Step 3: Add up the current value of your assets. Estimate real estate value, bank and credit union accounts, vehicles, investment and retirement accounts, business equity, life insurance policies, and other assets, like jewelry, antiques, and collectibles.
- Step 4: Divide your debt by your assets to find your leverage ratio. If your debt totals $20,000 and you value your assets at $120,000, your leverage ratio is 16.6 percent.
- Step 5: Total the amount of all your debt. Include mortgages, loans, credit card debt, and other lines of credit.