Using Liquid Term (Lt) To Guide Conversations
Factors to Consider when Assessing Liquid Term
While Liquid Term combines both cash and after-tax investments, it’s a good proxy to measure emergency expense preparedness. For example, a Liquid Term of 0.5 indicates 6 months of expenses covered, and if the underlying mix of that score is mostly cash, then this client might have a good buffer for unexpected expenses.
Additionally, understanding the correlation between the below factors and your client’s Liquid Term will help you determine if the given score is appropriate or not.
- Career Stage
- Upcoming Purchase
- Income Variability
- Family Size
Questions to guide conversations
- Should the client increase their liquidity?
- Does the client have an emergency fund? And how long will it cover? (i.e. 3 – 6 months)
- Does the client have any upcoming purchases or investments they need liquidity for?
- If the client wants to aggressively pay down debt, what Lt score should they have before pursuing that?
- For business owner clients:
- Should they make use of idle business cash?
- Do they have enough cash to cover overhead for a couple months?