Cash Ratio

How liquid are you as an individual?

Not your, uh...percentage of water. We’re talking about your money.

Cash ratio is a simple accounting metric that tells you whether or not you’ve got enough cash or equivalents on hand to cover your debts. Basically, just add your cash on hand and then add up short-term assets that you can get rid of quickly. Those marketable securities include bonds, stocks, and anything else that can be sold within a year. CDs count as well, but people will make fun of you for owning those, so...don't shout about them from the rooftops.

Take all those liquid assets and divide it by your current liabilities, or debts you will owe within the next 12 months. That’s it. That’s the cash ratio.

You’re now 14,499 definitions away from becoming a financial wizard.