However, liquid assets, like a savings account or an emergency fund, aren’t the only essential factors when it comes to liquid net worth. This is why liquid assets are so important to have available to cover unexpected expenses and emergencies. It’s most likely out of the question to sell your home to pay for your car expenses or dig into your retirement savings to pay for your car while you’re not even at the retirement age. You would probably want to have access to money that is readily available or assets that can easily be converted into cash rather than assets that would take you a while to liquify. Later that morning, you discover that the car you’re using for your road trip has a flat tire. Let’s say you’ve planned a road trip with friends that you’ve paid for in full. Non-liquid assets are assets that cannot be easily converted into cash, such as real estate, retirement accounts like individual retirement accounts (IRAs) or 401(k) accounts, cars, and other valuables such as jewelry and collectibles. However, liquid assets also include checking accounts, saving accounts, money market accounts, certificates of deposit (CDs), mutual funds, bonds, and stocks. You may already have an idea of the liquid assets that you have available to you, like the cash you have on hand or cash equivalents. Understanding the difference between liquid assets and non-liquid assets can help with organizing your finances more effectively and calculating your net worth correctly. Since liquid net worth only focuses on a specific portion of your assets, it generally will be less than your total net worth. On the other hand, negative net worth happens when your debt is more than your assets, which may cause you to minimize what you owe before adding any extra expenses. Positive net worth means that your assets outweigh your liabilities (how much money you owe). Net worth gives you an entire scope of your overall financial position, while liquid net worth shows you a realistic idea of the amount of money you have available to cover your lifestyle. However, liquid net worth doesn’t include your non-liquid assets and is determined by subtracting your total liabilities from your liquid assets.īoth are great tools to use to measure your financial health. This means that total net worth accounts for all of your assets, which consist of your liquid and non-liquid assets. The amount leftover is your overall net worth. Total net worth is calculated by subtracting your total liabilities from your total assets. On the other hand, your net worth is negative if your debt is more than your assets, which may cause you to minimize what you owe before adding any extra expenses. In other words, liquid net worth is how much cash you have access to or can quickly get your hands on after your debt is accounted for. Liquid assets are cash or assets that can easily be converted to cash. Liquid net worth is the amount of cash or cash equivalents you have left over after subtracting your total liabilities from your liquid assets. Let’s dig in and find out more about why liquid net worth matters and how you can improve your liquid net worth. And it can help you figure out opportunities for growing your net worth. Understanding all aspects of net worth is vital to ensure you meet your financial goals. But while net worth gives you a bird’s eye view, liquid net worth is the best way to measure your current financial situation. As you’ve started your personal finance journey, you’ve likely heard the term total net worth and may have even put in place strategies to increase your worth.Īssessing your total net worth is a good way to see a snapshot of your finances and whether you are in good financial health or if your finances need improvement.
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