What Is Liquid Net Worth? Definition, How To Calculate, Example

What Is Liquid Net Worth? Definition, How To Calculate, Example

What Is My Total Net Worth?

If you were to look at the wealthiest individuals on the planet, you’d see that they have net worths of billions of dollars. However, that doesn’t mean that the Bill Gates of the world have billions in a savings account. In fact, most of that money is tied up in fixed assets, like real estate, long-term investments, and corporate holdings. 

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Just because you don’t have a price tag in the eight or nine-digit range doesn’t mean that you can’t have a positive net worth. The most straightforward formula for determining this figure is calculating the value of all of your assets and comparing them to your liabilities (debts). 

To help you wrap your head around this concept, let’s do a practice example. 

First, you want to account for all of your assets, both fixed and liquid. Fixed assets are ones that can’t be turned into cash quickly. 

For example, if your home is worth $400,000, you would have to put it on the market and find a buyer before you could get that money. Also, after taxes and fees, your cut will be somewhat lower. So, for the assets column, you should include everything, such as:

Car – $15,000 Blue Book Value

House – $400,000 based on a recent appraisal

Savings – $50,000

Retirement Accounts – $525,000 in IRAs

Stocks and Bonds – $200,000

Jewelry – $10,000

Total: $1,200,000

If you have any other substantial assets, like collector’s items or other valuables, you can include them as well. Other belongings like clothes and furniture don’t count because their worth is not intrinsic. 

If you really wanted to count all of your “stuff,” you’d have to get it appraised. Even then, they will depreciate in value the more you use them, so your total would have to be adjusted annually. 

Next, you want to look at your liabilities, including any money you owe on those assets. So, if you still have a balance on your car and a mortgage to pay off, you’ll have to count that against your net worth. All liabilities should be included, but you can bundle types of debt (i.e., credit cards). 

Mortgage – $200,000

Car Loan – $5,000

Credit Cards – $5,000

Student Loans – $20,000

Total: $230,000

Based on these numbers, your current net worth would be $970,000 ($1,200,000- $230,000). If you owe more money than you have in assets, then you would have a negative net worth. 

Now that we understand the fundamentals let’s break down the difference between liquid and fixed assets.


How to Calculate Liquid Net Worth?

As we’ve briefly mentioned, calculating liquid net worth is quite simple. All you have to do is subtract liabilities from your liquid assets, as shown in the formula below:

Liquid Net Worth = Liquid Assets – Liabilities

That’s all there is to it. The specific liquid assets and liabilities you’ll use depend entirely on your business operations and financial activity.

Why is it Important?

Often time we find ourselves in unexpected predicaments. Something taxing, such as paying off a loan, losing your job, or an unforeseeable medical treatment, could come up. How do you properly budget your funds then? And how do you know if you have enough money to last yourself through this specific quandary? If your car broke down today beyond repair, will you have enough resources to buy yourself a new one?

Liquid net worth and net worth usually sound very alike. The difference between both, as explained above, might not seem huge, but both give you metrics about entirely different things. Think of it as a long-term and short-term safe deposit. Net worth is that long-term safe deposit you should not rely on because it means selling everything you possibly own as an asset. Whereas your liquid asset is more likely the money that is reliable. It is the money you could have at hand currently, should you find yourself in the middle of any crisis. It only accounts for you selling off your liquid assets.

Having a good grip and understanding of how much liquid net worth you have could help you properly plan things long before they have even happened. This will also end up providing you relief and help in making your life’s financial decisions. Once someone understands the limit of how much money they can allow being spent as damages or any other expense, their risk assessment improves tremendously.

This will ultimately also help you determine how much money you would have left after all this is done and over with. And if this can help you support and sustain yourself and your business any further.

How to Grow Your Liquid Net Worth

You may be happy seeing how much net worth you have, but this happiness is instantly ruined when you take your liabilities into account and find out your liquid net worth. You want to have as much money as necessary for a good life, and it feels like the liabilities will not allow that.

Well, even if your liquid net worth is not where you want it to be, you can work to improve this situation. Here are some things you can do in order to improve your liquid net worth over time.

Consider More Savings

If you didn’t consider emergency savings just yet, you should. Emergency savings funds are very useful because it ensures you will have money when you need it the most during a crisis. You may not know how to start saving, especially if you already find it hard to handle your earnings.

Well, you don’t have to start saving massive amounts. You can start with as little as $10, and slowly save more over time. Even if you keep saving $10 that you otherwise wanted to spend on a pizza, you will still see a difference after years and you will not regret saving some money. If you have problems with budgeting, you can download an app that will help you make a good budget and stop you from spending money on things you don’t need.

You can also create a unique savings account so that you won’t be tempted to spend your money.

Cut Debt

Of course, boosting your liquid net worth would not be possible if you have too much debt. If you’re already in that situation, you should start trimming it. Some debts can be negotiated. A credit card is a good example of that. For instance, you can agree to make higher monthly payments, meaning that the debt would be reduced.

If this doesn’t work for you, debt consolidation is also a good option, because it allows you to make a single payment instead of several ones. It will be easier to keep up with your debt and pay it off.

Earn More Money

If you don’t earn enough money, you can also consider having an alternative income source. Take a side job or sell something. If you manage to earn more cash, you will be able to grow your liquid net worth, which will make life easier for you.

Of course, you should still save money for your expenses and taxes, so you shouldn’t think just about going out and having fun.

Paying off Debt or Saving

Should you save money or pay off your debt? This may be a big dilemma for you. Well, this all depends on you and your financial situation. It is possible to save money while paying off your debt, so why not consider both at the same time? You should also make sure you do this without taking a credit card. Save over debt repayment instead.

Ideally, your monthly payments should be high enough to pay not only the amount you require every month but also the interest. If you don’t do this, you will have to deal with debt for a longer time.

Liquid Net Worth FAQ

#1: Do You Include Retirement Accounts in Liquid Net Worth?

When measuring your liquid net worth, you want to include the kind of assets that can easily and quickly be converted into cash. Now, the definition of quick and easy varies for every individual.

In general, though, retirement accounts and plans are not considered liquid unless you’re close to your retirement years and can gain access to the funds without any fees or penalties. In any other case, if you withdraw your retirement funds earlier than expected, you’ll most likely be subject to early withdrawal fees. So, for that reason, they typically are not included in your liquid net worth calculations because you cannot quickly exchange them for cash for their full market value – at least not without any additional charges.

#2: What Is the Most Liquid Investment?

Cash in hand is by far the most liquid investment, as it is easily accessible and you don’t have to sell cash to use it. Then come checking accounts, high-interest rate savings accounts, certificates of deposits, bonds, and so on.

What Are Non-Liquid Assets?

Non-liquid assets are assets you own that cannot be easily converted into cash, due to high transaction costs, long timeline for sale, or other factors.

Here are some of the major types of non-liquid assets.

Real Estate

While I love real estate investing, most forms of real estate are definitely not liquid. This includes your own personal home. Some of the main things that make real estate a non-liquid asset include:

  • it could take 3-6 months or more to sell a house once it’s on the market
  • transaction fees in the form of real estate commissions and closing costs are high (typically 8-10% of the sales price)
  • if you need to sell quickly, you will generally need to take a significantly discounted offer

Retirement Accounts

Similar to real estate, retirement accounts do not fit the definition of a liquid asset. While there are limited situations where you could take a withdrawal before retirement, you would generally have to pay a 10% penalty on top of the taxes due.

Raiding your retirement accounts for a short-term emergency should be avoided if at all possible. Retirement accounts include:

  • Traditional and Roth 401(k)
  • Traditional and Roth IRA
  • Solo 401(k) if self-employed
  • 403(b)

Personal Property

Most other hard assets you own that may contribute to your overall net worth are also non-liquid, such as:

  • cars
  • jewelry
  • art and other collectibles
  • furniture

While these assets do hold value, they would be difficult to sell quickly, or you would have to take a steep discount in order to sell. Nobody wants to take their wedding ring to a pawn shop just to cover the cost of an emergency!

Okay, so what is liquid net worth?

Imagine fire starts raining down from the sky. The horror!

We’re in emergency mode. A big house or fancy car won’t save us now, because we need cash ASAP.

To address this blind spot in the typical net worth calculation, finance geeks created what’s called a liquid net worth.

The goal? Find out how much easily accessible money you actually have.

About the Author

Lydia Kibet is a freelance writer specializing in personal finance and investing. She’s passionate about explaining complex topics in easy-to-understand language. Her work has appeared in GoBankingRates, Investopedia, Business Insider, The Motley Fool, and Investor Junkie. She currently writes about investing, banking, insurance, real estate, mortgages, credit cards, loans, and more. Connect with her on Twitter or moneycredible.com.

Retirement accounts

There will be taxes and penalties on your retirement accounts if you withdraw funds before you’re retired, so the current amount in these accounts isn’t the same as cash. A good rule of thumb is to take off about 30% of the current value to account for penalties and taxes due.

The exception to this rule is the Roth IRA, which will allow you to withdraw funds you’ve contributed without penalties. You’ll only pay the penalties on the gains, so penalties on these accounts are substantially smaller.

Liquid Net Worth Calculated

You can determine your liquid net worth by taking the total sum of your liabilities and subtracting that from the total sum of your liquid assets. However, some liquid assets may come with a liquidity discount, so you’ll want to factor this into equation when calculating your final liquid net worth.

For instance, let’s say you’ve got $20,000 in cash, $150,000 in brokerage accounts and $101,000 in a 401(k) account. If these are your only liquid assets, the total sum of your liquid assets is $271,000. If you only owe $5,000 in credit card debt and $42,000 in student loans, the total sum of  your liabilities is $47,000. Subtract that from $271,000, and your liquid net worth is $224,000.

Why is building liquid net worth important

Cash is king, which is a big reason why building your liquid net worth is so important. Of course, overall net worth is a great way to build wealth however, having a liquid net worth is important if you need to get access to cash quickly. 

For instance, for an emergency or an investment opportunity. Liquid net worth matters because it enables you to have access to cash fast.

Frequently Asked Questions

How do you figure out your liquid net worth?

Liquid net worth can be calculate by subtracting your current liabilities from your liquid assets. Liquid assets include anything that can be quickly converted to cash, and current liabilities are those debt payments and other liabilities that are due in the short term (1-12 months).

What is the difference between net worth and liquid net worth?

Your total net worth includes all of your assets (what you own) and liabilities (what you owe), including non-liquid assets such as your house, car, and retirement accounts, and long-term liabilities such as student loans and mortgages. Your liquid net worth includes only liquid assets that are easily converted to cash, and short-term liabilities, such as next month’s mortgage payment or your credit card bill.

Your total net worth gives you a picture of your overall financial strength and balance sheet, while liquid net worth shows how much money you have available that is quickly accessible in case of emergency or other financial hardship.

Is a 401(k) part of liquid net worth?

No, your 401(k) is generally not part of your liquid net worth if you are not yet at retirement age. The money in a 401(k), IRA, or other retirement account has specific rules around when and how it can be withdrawn, and usually a withdrawal would incur a penalty of 10% or more plus any taxes due if taken out early.

Does net worth include liquid assets?

Yes, your total net worth includes both liquid and non-liquid assets. However, your liquid net worth would ONLY include your liquid assets.

Other physical assets

Our “stuff” is usually not very valuable, and most of what we own, we probably wouldn’t want to sell anyway. Even if you move to Tahiti, you’ll still need silverware! The exceptions to this are items such as jewelry, fine art, or other objects that have a high market value and would be easy to sell. It’s your choice if you include these items when calculating your net worth. If you choose to include them, keep in mind that requiring a quick sale might mean you to reduce the price below the actual value for these calculation purposes.

Once you’ve adjusted each of these items, add everything together to get an idea of the value of your assets.


Liquid net worth does not have as much extensive street cred as net worth, but this measure is extremely helpful. Find a way to balance both your liquid assets at hand and good non-liquid investments that could also double as a source of income. We hope this article helped you reevaluate some of your personal assets and start planning for things in advance since it’s always better prepared than sorry.

Total Net Worth vs. Liquid Net Worth

When calculating liquid net worth, you subtract total liabilities from your total liquid assets. On the other hand, total net worth is the gross value of your assets minus total liabilities.

Liquid net worth considers the amount of money you have at hand: cash, cash equivalents, and other liquid assets less liabilities. Liquid assets are assets that you can quickly turn into money without a significant loss 一 this includes stocks, bonds, mutual funds, checking accounts, certificates of deposit, money market accounts and more.

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Total net worth factors in the value of your liquid assets and non-liquid assets minus liabilities. Non-liquid assets, also known as illiquid assets, are assets that take time to convert into cash, such as real estate, vehicles, private equity and even retirement accounts.

Build your liquid net worth!

As you build up assets, you’re also laying the groundwork to pass on generational wealth. Focusing on a healthy liquid net worth allows you to live life to the fullest now while also making decisions that affect your legacy.

Ultimately, the better you understand how to strike the balance between your overall net worth vs liquid net worth, the better you’ll be able to control your financial destiny.


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