Liquid Net Worth: What It Is, How To Calculate
Compute your liquid net worth by adding up cash and assets you can quickly convert to cash, then subtracting debts.
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What is liquid net worth?
Liquid net worth is a subset of net worth, which is the overall calculation of what you own minus what you owe. Financial pros call it assets minus liabilities.
Liquid net worth uses the same formula but only considers cash and other holdings that can quickly become cash — minus what you owe.
It's a valuable number to check, whether you're just starting out or are financially well-established but want to get a better handle on your spending and saving habits.
Liquid net worth can help determine the health of your financial safety net. It measures your ability to handle regular and short-term financial needs — and how well you meet your long-term money goals.
Exactly what are liquid assets?
Liquid assets are holdings that are in cash or can be converted into cash quickly. For example, if you have money in a checking, savings or money market account, you can withdraw it at any time without penalty or loss of value.
Some other assets are "illiquid." For example, if you have to hold an asset for an extended time, perhaps 30 days or more, before it can be issued as cash, it is not a liquid asset. And if the quick sale of an investment would significantly decrease its value, it is not considered liquid.
Stocks and bonds are usually considered liquid because you can sell these investments and have a cash settlement generally within two business days.
But if a stock is not actively traded, or has a volatile market price that might cause a significant loss in the event of a quick sale, it is probably not a liquid asset.
Real estate, antiques, jewelry, collectibles and many other hard assets are generally considered illiquid because quick-turn sales might not be possible.
So liquid assets are easy to access and sell — and aren't subject to a sudden loss in value if converted to cash.
How to calculate your liquid net worth
Let's look at the following financial profile as an example.
Perhaps your assets include:
A house worth $300,000.
A car worth $30,000.
You also have a 401(k) and an IRA worth a combined total of $250,000.
There is $6,000 in your checking account.
You have $10,000 in a savings account.
And $100,000 in mutual funds in a brokerage account.
As for your financial liabilities, you owe:
$100,000 on the home.
$5,000 on the car.
$5,000 in student loans.
And $2,000 on credit cards.
Here's how your liquid net worth would be calculated:
Your liquid assets total $116,000 (the total of the checking, savings and brokerage accounts).
Your liabilities total $112,000 (the loans on the house, car, student loans and credit cards).
The liquid assets of $116,000 minus liabilities of $112,000 equals $4,000 liquid net worth.
Remember, for liquid net worth, we excluded the house, car and retirement accounts. That's because you likely can't sell your home and vehicle quickly for cash, and generally, there is a penalty for withdrawing retirement assets before age 59½.
The checking and savings accounts are held in cash, and the brokerage account holdings can be converted to cash within two to three days by selling the mutual funds, so they are considered liquid.
Why liquid assets are important
Liquid assets are required to meet everyday and emergency expenses. It's the cash or quick-to-convert-to-cash holdings needed to pay bills and cover planned and unplanned costs.
However, many people have their wealth tied up in illiquid assets, such as a home or retirement accounts. So, don't be surprised if your liquid net worth is a small number. It's not a bad thing to have long-term assets where you can't immediately get to them. That's one way to build wealth and avoid impulse spending.
But if you want more liquidity, track your spending. You can use a budgeting app to help you. Look at what you spend money on, then look for places to cut back.
How to improve your liquid net worth
Once you know where your money is going, you can focus on improving your liquid assets by:
Trimming expenses. When you use a cash flow app, you'll identify "wants" that you can limit or eliminate, which will help you more easily fund "needs."
Reducing debt. Prioritize paying off high-interest debt first. As you do, you'll be freeing up more money for your cash cushion.
Saving money. A critical component of financial security is establishing and adding to your emergency fund.
Even if your net worth or liquid net worth now is a meager number — or negative — that's OK. You can work to slowly improve your bottom line.
» Ready to get started? Learn how to budget money.
