Liquid net worth is a measure of the assets you can rapidly turn into cash. It is calculated by subtracting your total liabilities from your total liquid assets. Liquid net worth indicates your financial stability, which is the ability to maintain overall financial health in difficult times.
Though you may not know it off the top of your head, you can easily calculate your net worth by subtracting everything you owe from everything you have. Everything you have is included under your “assets,” such as bank accounts, stocks, and properties. Your “liabilities” are everything you owe, including loans and debts.
So if your net worth includes “everything,” what is your liquid net worth? Your liquid net worth is all the assets you could turn into cash quickly to pay those loans, debts, and bills.
In this piece, we discuss what defines your liquid net worth, how to calculate liquid net worth, and the difference between net worth and liquid net worth. We’ll also briefly cover the importance of maintaining liquidity for financial security.
What is liquid net worth?
Liquid net worth is a different way of assessing your overall worth. In essence, liquid net worth is a measure of what you could buy with the cash you could get right now from liquidating all your assets after paying off all your debts. It’s what you are effectively worth today, or all the goods and services you can buy right now without credit.
How to calculate liquid net worth
To calculate your liquid net worth, count only your cash on hand and assets that can be easily and quickly converted into cash. Those assets — your “liquid assets” — minus your debts are your “liquid net worth.”
You can calculate your liquid net worth in four easy steps:
- Figure out what your liquid assets are
- Add them together
- Determine how much your debt equals
- Subtract your debt from your liquid assets
1. What are my liquid assets?
There are many different kinds of liquid assets, and some are more liquid than others. This is known as an asset’s “liquidity” — the speed it can be converted into cash.
Cash on hand
When you calculate your liquid net worth, cash on hand is the first asset you should count. Cash that is in your pocket right now is the most liquid asset there is. All you have to do to turn it into a good or service is take it out and give it to someone who’s selling what you want. This includes petty cash, anything stowed away in your safe, and the emergency fund in the closet.
Both your checking and savings accounts are assets and should be included when determining your liquid net worth.
- Checking. Your checking account is the second most liquid asset, particularly in the age of debit cards. It’s not cash, but as long as there’s a credit card reader and you remember your pin, it may as well be.
- Savings. Since you can’t access money in your savings account as easily as you can in your checking, these funds are slightly less liquid. That being said, ATMs have made savings accounts much more liquid than in the past.
Unfortunately, even though ATMs have made savings account funds more liquid, some ATMs not associated with your financial institution also charge small fees. If you rely on ATM withdrawals to access your savings, take a look at some of the savings accounts below that don’t charge any ATM fees.
Money market accounts
Money market accounts have features of both savings and checking accounts, making them an important liquid asset to include in your calculation. These accounts are interest-bearing, meaning they earn interest on the funds kept within the account.
Money market funds are generally composed of highly liquid assets, but you’re usually limited to withdrawing this money six times a month. Depending on how you withdraw your money (by check or ATM card), it may take a business day to complete the transaction.
If you’re looking for an interest-bearing account with limited access (to prevent unnecessary spending), consider opening a money market account with one of the vendors below.
Gold and silver
If you have any money wrapped up in bricks of silver or gold, you’ll be happy to know that precious metals are almost always included in liquid net worth. We don’t just love them because they’re shiny though — these precious metals and gems have been used as cash or as cash equivalents for as long as there’s been money.
Gold and silver both have a “spot price,” which is part of what makes them highly liquid assets. If you walk into a coin shop or pawn shop, they will almost always give you the fair market value of the precious metal at that day’s price. This allows you to quickly convert your precious metal into liquid cash.
Investing in one of the options below can help increase your wealth and make your money work for you. But how liquid are each of these assets? Fortunately, each of the investment opportunities below can be liquidated, though it may take a day or two to do so.
- Treasury bonds and bills. These are highly stable assets that are backed by the U.S. government. They can often be sold for cash immediately.
- Bonds. Though bonds have a maturity period, they can be sold on the secondary market quite easily. However, they aren’t guaranteed to sell for a profit, or even what you paid for them, depending on the markets. Because of this, bonds are generally part of your liquid net worth unless there are market reasons not to sell.
- Stocks. Most people have stocks these days, especially given the easy access online trading platforms provide. As long as the markets are open, you can sell your stocks for that day’s value. However, even though you can make money, you might also lose a lot if the markets are hurting. It also might take a few days to get paid. As with bonds, include your stocks in your liquid net worth calculation if you intend to sell that day.
- ETFs. Exchange-traded funds (ETFs) trade like stocks, and you can get your money on a similar timeline. However, how much cash you can get is highly dependent on the health of the markets. Like stocks, these are very liquid assets in a bull market.
- Mutual funds. As with ETFs, mutual funds can become part of your liquid net worth fairly quickly. Mutual funds are a nice way to keep your portfolio interesting, and proceeds usually take a day to roll over.
If you’d like to start investing, consider speaking with a brokerage to learn about your different options. You’ll also learn the different risks involved with each investment and how these play into your investment strategy.
What are not liquid assets?
It’s very important to understand what is not part of your total liquid assets too. Real estate, for instance, is generally not considered part of your liquid net worth. This is because, while a house may sell in a weekend in a good market, the transaction almost always takes a long time to complete. Plus, if the market is bad, you may have to wait a long time before your property sells.
Other valuable assets that are not generally considered liquid assets are things like collectibles, expensive musical instruments, cars, and really anything that has significant value that can’t simply be sold at will.
Finally, some things that may or may not be liquid assets are retirement accounts and 401(k)s. While you can withdraw them for cash before maturity, typically there are stiff penalties for doing so. Because of that, these accounts generally aren’t part of your liquid net worth. However, if you really need the money in your retirement accounts today, it may be worth it.
2. Add it all up
If the stock market is doing well and you have a few days to wait, add all of your liquid assets together. This includes your cash, cash equivalents, and other liquid assets as they apply.
Once all of these assets are added, you’ll have your total liquid assets. Now all you have to do is subtract your debts to get your liquid net worth.
3. Calculate your debt
This is a much less complicated category of things than your liquid assets. Most of these liabilities are obvious: car loans, student loans, medical bills, and your mortgage. It’s everything that would be subtracted from your net worth, too.
4. Calculate your liquid net worth
Once you have both numbers, just subtract your debts from your total liquid assets. While it’s a simple calculation, your end result can give you a better idea of your financial position.
If you have any trouble remembering which assets are liquid, use the table below.
|Highly liquid assets||Somewhat liquid assets||Non-liquid assets|
|Cash on hand||Bonds and stocks||Real estate|
|Savings and checking accounts||ETFs||Collectables|
|Treasury bonds and bills||Money market funds and mutual funds||Vehicles|
|Precious metals||Retirement packages (penalties apply)||Goods without a large and active cash market|
Net worth vs. liquid net worth
Though they have similar names, your net worth and liquid net worth represent different calculations and determine different meanings. Whereas net worth gives you a big-picture view of your financial health, your liquid worth is a much better indicator of your financial stability.
- Net worth. Your net worth considers your liquid and non-liquid assets when determining your overall wealth. This is a larger perspective of how much money you can access in the long run and is often used by creditors to determine whether lending to you is a smart decision.
- Liquid net worth. When calculating your liquid net worth, you only consider the assets that you can quickly convert into cash or cash equivalents. Liquid net worth acts as a barometer of your ability to withstand bad luck and finance your total liabilities without losing the assets that contribute to your total net worth.
In general, total net worth indicates your overall financial position while liquid net worth matters when it comes to your immediate financial situation.
Why is liquid net worth important?
Though it may seem like a lot of calculations, determining your liquid net worth ultimately protects your long-term assets. This is because, in the end, you’re calculating your financial stability.
First, non-liquid assets like your house really can’t cover emergency expenses. Even if you tried to sell your property, you probably couldn’t get the funds in time to pay for a major surgery or buy a new car. And unless there are exceptional market conditions, you’d probably have to sell it far below market value to move it quickly. But second, if you’ve had a disaster, your house is something you’re going to be using your liquid assets to try to keep.
This ability to maintain your net worth in terms of the big picture of your total assets is actually the key part of assessing financial health. An emergency fund is no good if it isn’t a liquid asset, and your financial situation isn’t secure if you have to sell your long-term assets that make up your total net worth.
Negative net liquid worth
If you calculate your liquid net worth today, you may discover that you have negative net liquid assets even if you don’t have a negative net worth. How could this happen?
Well, that’s because you probably have significant debts wrapped up in your non-liquid assets. Most people have a great deal of their non-liquid wealth in their houses. It’s very common to have several hundred thousand dollars tied up in a mortgage, and relatively uncommon to have at least that much in your savings account.
So if you do the math and it’s in the red, don’t worry! As long as you have enough money in liquid assets to take care of a few months of loan payments if things go wrong, your liquid net worth doesn’t mean you’re financially unstable.
- Liquid net worth is a measure of your liquid assets minus your total liabilities.
- Liquid net worth is different from total net worth, which includes non-liquid assets like houses, cars, and retirement accounts.
- Some assets are more liquid than others. For instance, any cash you have available is much more liquid than any money you have in a savings account.
- Calculating liquid net worth is important because it suggests how financially stable you are.
- You can have a positive total net worth and a negative liquid net worth. This is more common than it sounds, as many people have debts associated with their non-liquid assets.
View Article Sources
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- Tangible vs Intangible Assets: Here Are The Differences — SuperMoney
- How to Calculate Your Net Worth — SuperMoney
- Checking and Savings Accounts: How To Make Them Work Together — SuperMoney
- Are Checking Accounts and Savings Accounts Considered Assets? — SuperMoney
- What are the best options for parking huge amounts of money? Your Investment options. — SuperMoney
- What Is an Asset-Based Mortgage? — SuperMoney
- What Does It Take to Be Considered “Rich” in the U.S.? — SuperMoney
- Who Makes More Money: Athletes, Actors, National Leaders, Drug Lords or CEOs? — SuperMoney
- Best Investment Advisors — SuperMoney