What Is Liquid Net Worth? How to Calculate Yours

Liquid net worth measures your financial health by calculating exactly how much you have to your name in terms of cash and cash equivalents — things you can readily turn into cash. You may have a lot of non-liquid assets that raise your overall net worth, but if your liquid net worth is low, an emergency may leave you in a bind financially. Knowing your liquid balance sheet gives you an accurate picture of your overall financial stability, and helps you chart a path toward financial freedom.

In this guide, we talk about what liquid net worth means for an individual, how to calculate liquid net worth and how to improve your liquid net worth.

Table of contents

• What is liquid net worth?
• What are liquid assets?
• How to calculate your liquid net worth
• Why is liquid net worth important?
• How your net worth can affect your credit score
• Tips to improve your net worth
• Building your net worth

What is liquid net worth?

Liquid net worth is whatever cash or cash equivalents (such as treasury notes, stocks, and money market accounts) are in your possession, minus your liabilities. Similar to your net worth, liquid net worth excludes non-liquid assets, like real estate, vehicles or collectibles — things you can’t readily turn into cash. Basically, your liquid net worth measures how much cash you could muster on short notice. You may keep track of your liquid net worth so that you know how much money you can use for emergencies, bills, or unexpected expenses.

Liquid net worth vs. net worth

Liquid net worth is different from total net worth in that it doesn’t take into account non-liquid assets — things that you own that have value but can’t easily be converted into cash. Liquid net worth helps you understand how well you could handle short-term financial shocks. Total net worth, on the other hand, includes the total value of your assets minus liabilities, regardless of liquidity.^[1]

What are liquid assets?

Liquid assets are cash or cash equivalents. When we say cash, we’re talking not just about actual dollar bills in your wallet, we’re also referring to the amount of money in your bank account because you could walk into a bank or up to an ATM today and pull that money out immediately. You may also own cash equivalents, too, meaning things that aren’t cash but could be immediately converted into cash. For example, if you own stocks, you can usually sell those on a moment’s notice and generate some cash. If you have a money market fund, you could cash out of that immediately as well.

Non-liquid assets, on the other hand, are those things of value that you own and could sell for cash but that may take a long time for you to find a buyer. In other words, if you suddenly had an emergency where you needed cash in the next day or two, you couldn’t depend on that asset to help you out (although it may help you get a loan by serving as collateral).^[2]

Liquid asset examples

The best way to understand liquid assets is to see a few examples and why they count as liquid:

• Cash: This refers to actual money you have, either in the form of actual cash in your wallet or sitting in your bank account for immediate access.
• Investments: Stocks, bonds, mutual funds and ETFs (exchange-traded funds) are all things that you could quickly convert into cash, although their value may fluctuate frequently due to the market.
• Treasury bills and bonds: When you purchase a bond from the U.S. treasury, that's basically the same as cash, and it can be immediately converted into cash.

Non-liquid asset examples

By now you should have a basic understanding of non-liquid assets, but here are some examples to help illustrate them:

• Vehicles: Your car, RVs, or any vehicle you own all have value, but you would have a hard time selling them within hours – at least for their full market value.
• Real estate: Your home, commercial property, or any land are non-liquid assets, even though you could access the equity through a home equity loan. That’s because it can take months or even years to sell real estate.
• Retirement accounts: You might think that your 401(k), IRAs, or any tax-advantage accounts or retirement savings might be liquid because you could pull from them quickly, but they are not considered liquid unless you are at retirement age. Because these funds are set aside for retirement and were accumulated with tax advantages, you face significant penalties if you pull from them early.

How to calculate your liquid net worth

So how do you determine your liquid net worth? You easily calculate your liquid net worth with a simple formula. We share the step-by-step process below as well as provide an example to help you figure it out.^[3]

Liquid net worth formula

The formula for determining your liquid net worth is your total liquid assets minus your total liabilities. That’s it.

Liquid net worth calculation example

Here’s a hypothetical example to help illustrate how the liquid net worth calculation works.

For your assets, assume you have the following: $250 in cash, $1,000 in your checking account and $4,000 in your savings account. If you add all of that together, your total liquid assets are $5,250. Let’s say you also have $10,000 in student loans, a $5,000 auto loan and $1,750 in credit card debt. Your liabilities are $16,750.

So by subtracting your liabilities ($16,750) from your liquid assets ($5,250), you have a liquid net worth of -$11,500.

Why is liquid net worth important?

Knowing your liquid net worth gives you some sense of how close you are living to the financial edge should some unexpected life event happen. You may think your finances are in order, but your liquid net worth may reveal you are not as financially secure as you thought — or even have a negative net worth — and may need to make some adjustments.^[2]

What adjustments can you make? For one thing, if you were considering taking on some more debt, you may want to reconsider that. Also, you might want to budget so that you are either paying off debt or adding more money to your savings or an emergency fund.^[1]

How your net worth can affect your credit score

Your net worth may not directly affect your credit score, but it can certainly have some indirect effects. For example, if you don’t have sufficient monthly income to pay your bills and you don’t have much liquid net worth, you may rack up debt or miss payments, which will negatively affect your credit score.^[4]

Tips to improve your net worth

If your liquid net worth is not where you’d like it to be, we discuss a few steps you can take to improve your situation.

Pay off any debts

A great way to have an immediate positive impact on your liquid net worth is to start paying down your liabilities. Pay down debts such as credit card balances, personal loans or anything else you owe money on. By paying off debts on time, this will also improve your credit score. Gradually, both your net worth and credit may improve as you pay down liabilities.^[1]

Spend less than what you make

Another positive step is to increase the money you’re bringing in by lowering your expenses. Tackle your budget and figure out what you could do without on a monthly basis. This will both help you stay out of debt as well as carve out a little extra money to put into savings, both of which will improve your liquid net worth.^[5]

Consider other ways to make income

A third method is to find a way to increase the amount of cash you’re pulling in. Get a side hustle to supplement your main income. Find something you’re good at and carve out some time in the week to offer those services, such as monetizing a hobby, mentoring or freelancing.^[6]

Building your net worth

If you’re planning to build either your total net worth or your liquid net worth, you should know the differences between each one so you can better understand your financial situation and achieve your financial goals. Your standard net worth tells you how well you are set for the long run, but your liquid net worth provides an equally important picture of how you’re doing right now. Be sure to track your liabilities and assets on a regular basis, budget tightly to increase your savings, pay down debt, and continue to make debt payments on time. By instituting these good personal finance habits, you’ll slowly boost your liquid net worth.

Sources

1. Experian. "What Is Net Worth?" https://www.experian.com/blogs/ask-experian/what-is-net-worth. Accessed July 8, 2022.
2. Experian. "What Are Liquid Assets?" https://www.experian.com/blogs/ask-experian/what-are-liquid-assets. Accessed July 8, 2022.
3. Forbes. "What Is A Liability?" https://www.forbes.com/advisor/investing/what-is-a-liability. Accessed July 8, 2022.
4. CNBC. "How does your salary and income impact your credit score?" https://www.cnbc.com/select/how-does-salary-and-income-impact-your-credit-score. Accessed July 8, 2022.
5. Forbes. "Net Worth: The Top 5 Tips For Building Your Wealth," https://www.forbes.com/sites/melissahouston/2021/09/16/net-worth-the-top-5-tips-for-building-your-wealth/?sh=661fa8756f0a. Accessed July 8, 2022.
6. Forbes. "17 Ways You Can Make Money Online Right Now," https://www.forbes.com/sites/laurabegleybloom/2020/03/25/make-money-online-right-now/?sh=243321bf70a5. Accessed July 8, 2022.

About the author

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

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