ow you can simulate the weight of your expenses on your budget with the new Coverflex effort rate simulator!
The effort rate is an economic-financial metric that indicates the relationship between monthly financial expenses and the net monthly income of a household. This rate aims to provide a percentage representation of your current financial health.
In fact, this economic instrument is often used by financial institutions when granting credit to assess an individual's ability to take on new financial commitments.
Determining the effort rate
Calculation Formula: Effort Rate = monthly financial expenses (with credits) / net monthly income x 100
Calculating the effort rate is easy and intuitive, and involves only two indicators: monthly financial expenses (such as personal loans, mortgage loans, car loans, credit cards, etc.) and the total net monthly income of the household in question.
Divide these two values and multiply them by one hundred (100) to obtain your effort rate, which is a percentage that indicates the effort you make considering your financial expenses, i.e., whether or not you compromise your financial well-being.
Practical example:
Two young adults want to calculate their effort rate. It is known that they collectively have a net monthly income of 2,400 euros. Additionally, in terms of financial expenses, they have a mortgage loan with a monthly payment of 400 euros, a personal loan with a monthly payment of 100 euros, and a car loan with a monthly payment of 200 euros, that is:
Monthly expenses: 400 + 100 + 200 = 700 euros
Total net monthly income: 2,400 euros
First step
Divide the monthly financial expenses by the total net monthly income: 700/2,400 = 0.29
Second step
Multiply the value by 100: 0.29 x 100 = 29%
Thus, they have an effort rate of 29%.
In conclusion, this financial indicator allows you to directly and simply evaluate the financial effort you are making in relation to your income. With this calculation, you can quickly and effectively determine whether you are in a positive financial situation or if you need to make some changes and adopt new habits to reverse your current position.
