How this calculator works
Net worth counts everything you own minus everything you owe. Liquid net worth narrows the asset side to things you could sell or withdraw within days without a large loss: cash, chequing and savings balances, money market funds, treasury bills and other short-term deposits. A house, a car, a locked-in retirement account or a private business interest is usually excluded because selling it takes time or penalises you. All liabilities stay in the calculation, including a mortgage, because the debt is still due even when the matching asset is illiquid. The result is a practical measure of the money you could raise quickly.
Formula
Liquid net worth = total liquid assets - total liabilities. Rearranged, liquid assets = liquid net worth + total liabilities, and total liabilities = liquid assets - liquid net worth. The coverage ratio is liquid assets / total liabilities.
Worked example
Cash, chequing, savings and a money market fund total $25,000, while credit cards, a line of credit and a car loan total $10,000. Liquid net worth is $15,000 and liquid assets cover the debts 2.5 times over. If you want $40,000 of liquid net worth and owe $12,000, you need $52,000 in liquid assets.
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Frequently asked questions
Are registered retirement savings liquid?
A retirement account that you can withdraw from is reachable but often attracts withholding tax, so it is only partly liquid. Count the after-tax amount you could actually spend, or leave it out and compare the result with a separate retirement plan.
Should I include my home equity?
The home itself is not liquid because a sale takes months and costs commission. Any cash you have already withdrawn through a home equity line of credit is a liability, while an unused credit limit is not an asset.
Why can the coverage ratio be missing?
The ratio divides by liabilities. With no liabilities there is nothing to cover, so the ratio is undefined and only the dollar figures are shown.