What Is Liquid Net Worth & Why It Matters

Last Updated by Neiko Johnson on 
September 25, 2021
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Have you ever asked yourself what is liquid net worth?

You may hear a lot about building wealth and earning money but are not sure how important liquid net worth is. Your liquid net worth reveals a lot about your financial wellness.

In this article, we will go into detail about what liquid net worth is, how to calculate it, and why it's matters for your financial future.

What Is Liquid Net Worth?

Liquid net worth is a calculation that is made to examine what your financial status is.

Your liquid net worth is what you would have left if you had to pay off all of your debts today. What's leftover is what you are actually able to invest and use for spending money.

The liquid net worth calculation is what you can touch today.

Many people confuse what is liquid net worth with what is your net worth. To be totally clear, your net worth is what you have minus what you owe.

There are other factors that go into what your liquid net worth is and we will discuss them in detail below.

The definition of what is liquid net worth and why it matters isn't so simple when you break it down.

The next part that needs to be discussed is what are your assets and what are your liabilities.

What Are Liquid Assets?

Liquid assets are what you can convert to cash today. Examples of what can be considered as your liquid assets include cash, bank accounts, funds in the retirement account (such as a 401K or an IRA), and stocks that can be turned into cash quickly.

Anything else would not be considered as what is liquid net worth.

Instant access to what is liquid net worth is important for any personal finances.

When you calculate what is liquid net worth and what it means for your overall financial wellness, you will learn what areas need to be improved and what areas could be reduced to better suit your current financial situation.

What Are Non-Liquid Assets?

Non-liquid assets are what you can't easily convert to cash today. This includes your car, home, jewelry, and anything else that won't sell for what it's worth immediately.

Your house can be converted into what is liquid net worth if you had to sell it today but it would take some time, effort, and money to do so.

Your what is liquid net worth will play a part in what you are able to accomplish on your financial journey.

It's hard to sleep at night when you owe on your house or car because being debt-free is important for what personal finance goals you are trying to reach.

Now that what is liquid net worth has been covered, it's important to know what liabilities are.

What Are Liabilities?

Liabilities are what you owe on loans, mortgages, credit cards, or any other liability that requires paying money back.

It's important to know what are liabilities and how they affect what is liquid net worth.

As much as it can be difficult to pay what you owe, keeping track of what you owe and the payment due date is important for what is liquid net worth.

Even what you owe to friends or family can be considered what is liquid net worth when looking at your what is liquid net worth calculation.

Above all, focusing on limiting the number of liabilities you have will help you build wealth in the long run.

How Do I Calculate My Liquid Net Worth?

Calculating your liquid net worth is easy. To calculate your liquid net worth follow these steps:

  • Add up your liquid assets
  • Then add up all of your debts
  • Next, subtract your liabilities from your liquid assets

Liquid net worth = liquid assets - liabilities

There are three different ways to calculate your liquid net worth, depending on what you have available in bank accounts and what debts you have.

For example, if you had $200,000 in savings but also owed $50,000 on a credit card, your liquid net worth is what you would be able to get that day if your money was transferred into cash.

First, add up the total of all the savings and checking accounts in your name. Subtract what you owe on credit cards and other unsecured debts such as personal loans and medical bills.

Next, add what you owe on loans that are secured like your car, home, or student loans.

Subtract what is owed on these accounts from what you currently own in savings and checking accounts (step 1).

Finally, subtract what you owe on all other debts such as taxes and business debt.

This will give you what you have left for use.

Why Is Liquid Net Worth Important?

Liquid net worth is an important calculation to make because it helps you determine what your financial status really is.

Your liquid net worth can tell you what you should be doing with your money and what could help improve your overall financial situation.

Making decisions based on what you have left after you calculate your liquid net worth determines what is really important and what should take a back seat.

For example, say your liquid net worth is $10,000 and the total value of what you owe is $35,000.

The difference here shows what you would not be in debt for if you sold everything today: $25,000.

This tells you what would be possible if you sold everything and what real steps should be taken to get your finances on the right track.

Another example is what liquid net worth reveals about what needs to happen if you are in need of extra money quickly.

If your liquid net worth was $5,000 out of what you owe $10,000 what you could sell what's left to get extra cash: $5,000.

This tells you what needs do to and what could be important in the future for making more money or spending less.

An important part of your liquid net worth is what can be converted into cash today.

Use what you have that can be turned to cash shortly to help with what is important in your life.

We all need extra money for what we want but what should be the priority?

Your liquid net worth reveals what can help you get what you really want or need.

Is A Higher Liquid Net Worth Important?

A higher liquid net worth value means that more of your money is available for investing.

The more invested money you have, the faster you will be able to build wealth and increase your financial wellness.

Having a high liquid net worth is what many people strive for in life. If you have a high liquid net worth, then you will be able to afford what your heart desires at any given time.

High liquid net worth values are what enable people to retire early so that they can travel the world or live on a farm or focus their efforts on philanthropy.

You may no longer have to work for what you want in life.

A high liquid net worth can also lead you to be able to afford what is important in life, such as a college education or the best healthcare.

What is possible when you have a high liquid net worth makes what happens in your life easier.

What Does Liquid Let Worth Tell Us?

Your liquid net worth reveals what you really own minus what you owe. If your assets are greater than what you owe, this means that if something happened and you needed to sell everything right now to pay for living expenses or what you owe you could.

The liquid net worth calculation also tells us what can help make your life better or what steps should be taken to improve your financial situation.

If what you owe is greater than what you own, what you could do is sell what's left over to pay what you owe. Using what can be sold for cash will help make life easier and the situation better.

The difference between what you own and what you owe is a representation of what steps need to take place next in your life.

The key to good personal finance is limiting debt, living frugally (without depriving yourself), saving money, and increasing your income. All of these practices will improve the total value of what you own minus what you owe.

This is what is liquid net worth is and what it's used for in personal finance.

Final Words - What Is Liquid Net Worth And Why It Matters

Liquid net worth is what you are left with after all other assets have been taken into account, which should be the focus of your personal finance.

When considering what should take priority in life, it's important to look at what can't be converted to cash today and what would happen if something happened that required liquidation right now--would there be enough money?

If not, then what steps need to take place next?

The higher your liquid net worth value becomes, the more options become available for you.

Let us help you increase your liquid net worth by limiting debt, saving money, increasing your income, investing wisely, and still enjoying life.

With our guidance on how to get started building wealth from scratch or repairing a broken financial situation.

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Article written by Neiko Johnson
Neiko is a personal finance expert and Co-founder of Secret to Finance. Along with his wife Alexis, they learned how to get out of debt and paid off $400,000 in 4 years.

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