What is Your Liquid Net Worth? [Meaning, Tracking, and How to Calculate It]

Your liquid net worth is a subject that you probably find interesting. After all, who doesn’t want to know how much money is available to them?

Knowing your liquid net worth can really help your finances and give you a better idea of your overall money picture. And there are differences between regular net worth and liquid net worth.

Multiple ways to increase your liquid net worth exist, including investing, reducing expenses, debt payoff, etc. Here’s everything you need to know.

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What Is Liquid Net Worth and Why Does It Matter?

Your liquid net worth is a figure you should know about. It is your liquid assets subtracted from your liabilities. The leftover money is your liquid net worth.

What are liquid assets?

Before we go further, you’ll need to know more about liquid assets. What is a liquid asset, and how do they contribute to your overall number?

First of all, the term “liquid” means that it can be converted to cash relatively quickly. If it wouldn’t be challenging to turn the asset into cash, it’s liquid.

Here are some examples of liquid assets:

  • Cash – Just regular cash is a liquid asset. In fact, you can’t get much more liquid than this.
  • Money in bank accounts – The money in your checking and savings account can very easily be switched to cash, making it simple to liquify. If you have multiple bank accounts, the money in each one should be included when you calculate.
  • Stocks – Stocks are also easy to convert to cash, making them a liquid asset.

There are other assets that are non-liquid, however. These are things that would take time to convert to cash.

They are still assets, but it isn’t as easy to get them into the cash form you want. Here are some examples of non-liquid assets:

  • Real estate – owning a home or rental property is real estate. It’s a great asset to have but not very liquid, as the sale can take some time if you want to make money from it, and remember, profits can vary.
  • Vehicles – Vehicles are also necessary and good to have; this asset is not liquid, though. You would need to sell the car to make money from it and turn it into a liquid asset. This is not quickly done in a few days typically. You’ll need to advertise, find a buyer, and go through the selling process. Plus, the value of a car can change.
  • Art – Expensive or rare art may be worth a lot of money, but it isn’t liquid. You’d need to find someone willing to buy the artwork to get the liquid cash you want.
  • Jewelry – Jewelry can be worth a lot, but it still needs to be appraised, a buyer must be found, etc. All of that takes time before you see a profit.

Which assets are included in liquid net worth?

You should include the items that can be quickly turned into cash, so the first list but not the second. Any assets that you can quickly convert to cash without it dropping in value is part of your liquid assets.

Is a car a liquid asset?

Your car is an asset, but it isn’t a liquid asset. It would take a bit of time to list a car for sale, find a buyer, sell it, and get the cash for the car.

So it does have value, but not the kind we’re discussing.

Are stocks liquid assets?

Yes, they are. Stocks don’t take long to convert to cash, usually just a few days. This makes the money available to you quite quickly.

What is my net worth vs. liquid net worth?

Your regular net worth is all of your assets minus all of your liabilities. There is no distinction between liquid and non-liquid assets; it all counts as part of your net worth.

Use this calculator to determine your total net worth.

On the other hand, you also have a liquid net worth. Liquid net worth is calculated by subtracting your liabilities from your liquid assets.

You don’t include assets that cannot be converted to cash fast. This is likely to look different from your regular net worth because of the inclusion and exclusion of various assets.

How To Calculate My Liquid Net Worth?

We’ve discussed this a little, but what is the actual formula for calculating your liquid net worth? It looks like this: 

Liquid net worth = liquid assets – liabilities 

Here are some examples to help:

You have $20,000 in liquid assets (stocks, savings, and cash) and $10,000 in liabilities (student loans and credit card debt). Your liquid net worth is $10,000.

Here’s another:

You have $100,000 worth of stocks and $10,000 in savings. You have a paid-for house, as well. Your only liability is a personal loan of $5,000.

Your liquid net worth is $105,000. (Liquid assets total $110,000, paid for house is an asset but not a liquid one. And your liabilities are $5,000. Subtract the two to get $105,000).

Why Liquid Net Worth Matters For Your Finances

Now you know how to calculate everything. But what’s the purpose? Why does it even matter? It’s essential for a couple of reasons.

First, it’s the money you have available to you right now. In the present moment, if you suddenly need all your available cash, your liquid net worth is the amount you’d have. 

Next, if you had an unexpected occurrence that costs money, this is what you could use. Not that you want to cash in on savings and stocks, but it would be an option if you absolutely needed to.

How to Increase Your Liquid Net Worth

So your net worth can help you in an emergency, and it’s all the money that’s available for you to use if needed.

Are you thinking you’d like to increase your liquid net worth? Doing so can give you more security and help you with your finances.

Here are some ways to improve it:

1. Reduce your liabilities

You automatically have a higher net worth when you have less owed in liabilities. You owe less, so what you do own counts for more.

The same applies to liquid net worth. Since this is the case, reducing your liabilities, such as credit card debt, will put you in a much better financial position. 

You can reduce your liabilities by paying off your debts. This is easier said than done, but it is pretty much the only way to get rid of this extra cost.

Be patient and keep working. Eventually, you’ll have a higher liquid net worth.

2. Add a side hustle

Adding a side hustle is going to give you more income. You can buy more assets or decrease what you owe in liabilities when you have more income. Plus, a side hustle has multiple other benefits, such as increased financial security.

When starting a side hustle, you can do several things. Small odd jobs like pet sitting, house sitting, or delivering groceries are good ways to get started.

Or, if you have the time and know-how, you can create a business on the side, like blogging or making and selling crafts on Etsy. Choose something you enjoy that will bring in enough income to help you.

Here are some helpful different side job ideas:

3. Cut your expenses

Cutting your expenses is very beneficial for a number of reasons. In fact, you don’t have to be trying to increase your net worth to enjoy the benefits of cutting expenses.

Though you will feel the effects no matter what, which is more money. Instead of making more money, you’re saving more, increasing income to spend on assets or liability payoff. 

You can cut your expenses by going over your budget to see where you can cut back. For example, subscriptions you don’t use or can do without, lowering your grocery bill by being more frugal, or even something quite extreme, like selling a car if you have two.

Use the extra to help you financially, not just for anything.

4. Start investing

You can build up a bit of money from saving, cutting expenses, making a higher income, or reducing liabilities. Or, more likely, all of these things.

Soon, you’ll have the money to invest. Some investments are liquid assets, like stocks and bonds, generally. 

Choose things that are easy to trade for cash if needed if you want to increase your liquid net worth. But also know that you can buy less liquid assets that will nevertheless be helpful to you later on.

Even if you have to wait for years, they will eventually be part of your investment plan for retirement. Make sure you understand what you’re investing in or speak with a certified financial planner if you’re not sure.

5. Reduce your spending

And here’s everyone’s favorite, reducing spending. Your liquid net worth can get higher when you save more money through reduced spending.

First, it automatically increases your liquid net worth through cash. But you can also use the extra to invest or pay off debt.

Reducing spending can be done in many ways, like choosing free options instead of paying extra all the time. For example, watch movies at home instead of going out.

You can also be more mindful of spending by giving yourself a monthly limit. For example, $50 for fun money each month, and save the rest.

It may not sound like it will help much, but your savings will add up quickly if you’re used to spending $300 or some other high amount.

6. Sell items

To quickly get more cash, which is a liquid asset, sell some items. Obviously, things like cars, houses, jewelry, and art, as discussed earlier, take time to sell.

But if you aren’t in a rush to increase your liquid net worth, selling one or more of these items can help.

You can also increase it by selling things around your house. Whatever you have that you no longer use can be sold, as long as it isn’t falling apart and someone could still use it.

Sell some things to add a bit of a boost to your liquid net worth. Then store the money in savings or investments. 

You can also sell photos for use as stock photography to earn some extra cash.

7. Change your habits

Changing your habits can help you save money that can become part of your liquid net worth. Changing an expensive habit will look different for everyone.

For example, you could decide to not use your car a few days a week and save the gas money. Or maybe you find yourself shopping on the weekends and want to take up running instead.

Perhaps you take expensive yoga classes when you could work out at home more often for free.

The idea is to discover any habits you have that consistently cost you money and cut back on them or eliminate them entirely. Use the extra to add to your net worth and help yourself financially.

Knowing your liquid net worth is important because it keeps you aware of how much money you have readily available for your immediate needs.

Both types of net worth matter. But your regular net worth isn’t going to be available quickly in an emergency.

Your liquid net worth is there for your immediate needs if you find that you have to use it. It’s essential to know how much you have.

Take the time to add up all of your liquid assets and subtract them from your liabilities. Then you’ll know your liquid net worth number.

You can keep track of it by recalculating it whenever you save a significant amount of money or sell something, or an investment goes up in value. 

While you don’t need to look at your liquid net worth every day, it’s helpful to be aware of how much you have and keep it easy to access if you need to use it. Remember to try to increase it, as well as less liquid assets, and add to your overall net worth over time.

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Steffa Mantilla

Certified Financial Education Instructor

Steffa is a Certified Financial Education Instructor (CFEI) and the founder behind Money Tamer. Her 12-year background in operant conditioning and positive behavioral change training is used to help people find effective motivators to change their harmful money behaviors. Steffa explains the reasons “why” behind people’s financial behaviors and how to successfully change them. After paying off over $80,000 in debt through budgeting, she now teaches families how to get their own finances in order. You can learn more about her here.

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