The Importance of Liquid Net Worth

Understanding your net worth and how to calculate it is hugely important for measuring your financial health. It is simply the difference between assets and liabilities. However, it doesn’t consider the liquid nature of your assets.

For example, stocks and bonds tend to be more liquid than other assets as they can be quickly and easily converted into cash. Other assets like your house or car take time and negotiation to sell if you need money.

What Is Liquid Net Worth?

Liquid net worth yields all of the benefits you get from knowing your net worth but having liquidity gives you the flexibility to pursue opportunities or face challenges quickly.

Although net worth provides a view of your current financial condition, it doesn’t differentiate the assets that can provide you with liquidity quickly and easily.

You can either remove non-liquid assets from your total assets or discount their values from their appraisals.

The Formula = Liquid Assets Less Total Liabilities

1. Understand the differences between your net worth and liquid net worth. Liquid net worth is what you need to count on for immediate funds.

Your Liquid Net Worth

2. Liquidity varies among our assets which have different growth rates. Money market accounts are liquid but typically have lower returns than stock investments long term.

Liquid Assets: – Cash – Cash-Equivalent Securities – Brokerage/Investment Accounts

How To Calculate Your Liquid Net Worth?

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