Plenty of Assets, But Cash-Poor? The Liquidity Trap
If most of your $400,000 net worth is tied up in a single house, you might not have much cash on hand when an emergency hits. That's the liquidity problem. Your liquidity ratio shows how much of your total assets could be converted to cash within a few days without loss — cash, checking, savings, and money market funds all qualify, while real estate and long-term investments typically don't.
This calculator also shows how many months of expenses your liquid assets could cover. A common guideline is to keep 3-6 months of living costs in an emergency fund, with 6 months or more recommended if your income is less predictable. On the flip side, holding too much cash in low-interest accounts creates a real opportunity cost as inflation erodes its value — so once your emergency fund is covered, consider putting the rest to work. Looking at both the liquidity ratio and the coverage period together gives you a quick read on whether your finances are overly tied up in illiquid assets or sitting idle in cash.
Frequently Asked Questions
Cash, checking, savings, money market funds, and short-term CDs that can be converted to cash within a few days without loss. Real estate and stocks are usually excluded.
Around 5-15% of total assets is a common guideline, but what matters more is having 3-6 months of expenses saved as an emergency fund.
Excess cash in low-interest accounts loses real value to inflation over time. Cover your emergency fund first, then allocate the rest.
※ The right liquidity level depends on income stability and household circumstances. This is a reference estimate only.