The current ratio and the month's living expenses covered ratio can help you determine whether or not you have enough monetary assets to pay for a large, unexpected expense or to tie you over in case of a period of reduced or eliminated income.

The current ratio tells you how many times over you could pay off your current liabilities with the cash you have on hand. To calculate your current ratio, divide the amount of your monetary assets, your current assets, by the amount of your current liabilities. The more times you can pay off your current liabilities, the better off you are financially. A ratio greater than two is recommended. Track the trend of this ratio; if this ratio is going down, you need to make changes to improve your financial situation.

The second important ratio is the month's living expenses covered ratio. This ratio tells you how many months you could survive financially if you lost all current sources of income. To calculate this ratio, divide the amount of your monetary assets by the amount of your monthly living expenses. Realize that your living expenses should not include charitable contributions, taxes or savings, because if you lost your job, you would not have these expenses or savings.

A ratio that allows you to pay your living expenses for three to six months is recommended. The ratio should be equal to at least as many months as it would take to get a new job if you lost your current job. Again, track the trend of this ratio; it should be improving. If it is not improving, you need to make some changes to improve your financial situation.
 
In the example above, the current ratio is calculated as current assets divided by current liabilities. Bill and Suzy have $6,000 in current assets divided by $700 in current liabilities or current ratio of 8.57.  Bill and Suzy could pay their current bills 8.6 times with the money they have in their savings. They are well within the recommended ratio of 2 times. 
 
Their month's living expenses covered ratio is calculated as monetary assets divided by monthly living expenses. Bill and Suzy have $6,000 in current or monetary assets divided by $1,925 which is their monthly living expenses or a ratio of 3.1 times. Bill and Suzy could pay 3.1 months of living expenses with their existing monetary assets. They are within the recommended range of three to six months, although they are on the lower side.