There are two types of people in this world: producers and consumers. Producers create value and consumers deplete it. Producers, in nearly all existing societies, generate greater financial returns and record stronger financial health than consumers. The more value we create, the more wealth we generate, and the less wealth we spend on non-producing assets, the more wealth we retain and can invest in the future.

Naturally we all both produce and consume, but we do so at varying degrees. While none of us is 100% producer or consumer, where we lie on the spectrum is a strong indicator of our financial health. Are we largely 70% consumer and 30% producer? Or vice versa? Are we split 50/50 down the middle?

The producer-to-consumer ratio measures the amount of value we produce versus consume. On the most basic level, it measures our adherence to the golden rule of personal wealth management: spend less than you make. In other words, consume less than you produce. And while the ratio does not necessarily reflect the status of our bank account, it fundamentally captures our financial habits—how we operate on a day-to-day—which in the long term translates into our financial health.

It’s a simple calculation:

(Monetary Value Generated from Work Performed x 100) / (Monetary Value Generated from Work Performed + Monetary Value Expensed on Non-Producing Assets)

Monetary Value Generated from Worked Performed measures production, while Monetary Value Expensed on Non-Producing Assets measures consumption. The key aspect of production is work “performed”, implying that cashed investments (stocks, bonds, cryptocurrencies, etc) do not add to our inherit degree of value creation (with the exception in which our form of compensation is in equity, such as within early-stage startups for instance). Likewise, the key aspects of consumption are “non-producing” asset expenses i.e. expenses with no potential of generating future returns, as opposed to “producing” assets, which more resemble investments rather than expenses.

The ratio ranges between 0% and 100%. Consumers fall within the 0% to 50% range, while producers fall within the 50% to 100% range. Consequently, if we are 60% producer and 40% consumer, we produce 1.5 times more than we consume. Financial performance is directly correlated with our ratio score.

There is no “right” or “wrong” ratio score. The purpose of the ratio is to give us a clearer picture of our production standing—what we choose to do with that knowledge is entirely up to us. Whether we are predominantly a producer or a consumer is a personal choice, and if we are satisfied with where we are, then we are winning. But if we want to elevate our financial health, let’s measure our producer-to-consumer ratio on a monthly basis and continue to find ways to increase value generated from work performed, while minimizing expenses on non-producing assets.