Liquid assets to net worth ratio
Interpreted in light of goals: it should be low when goals are distant, since idle liquidity earns low returns, and higher when goals must be met in the near term.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Debt to income ratioMonthly debt servicing commitment divided by monthly income — the ratio that says whether a household's income can carry the loans it already has, let alone another one.
- Emergency fundA pool of money held in liquid assets, sized at six months of household expenses, kept aside so that an interruption in income does not force the sale of long-term investments.
- Expenses ratioAnnual recurring expenses divided by annual income — the share of a household's earnings consumed by regular living costs, and the exact mirror of the savings ratio.
Where this is taught
Free preparation for NISM Series X-A← All terms