What is Liquid Net Worth? (& how to calculate it)

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Elon Musk’s net worth is currently put at $136.9 billion, but does that mean he can purchase $136.9 billion worth of jets, mansions, or yachts? No. His net worth may be $136 billion but his liquid net worth is much smaller than that.

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While it may be quite difficult to calculate the liquid net worth of world billionaires like Elon Musk and Jeff Bezos for a myriad of reasons, it is a bit more straightforward for many of us who are non-billionaires.

Aside from that, knowing your liquid net worth is a very essential personal finance metric you should understand especially if you do not want to go bankrupt quickly!

Looking into your total net worth is one of the best ways to determine your financial health. However, knowing your liquid net worth reveals how well you are doing financially and therefore has more value to you.

What Is Liquid Net Worth?

While your net worth can be said to be the total assets you have minus your liabilities, your liquid net worth is the exact amount of your net worth that can be converted into cash if needed right away. Your net worth may be much higher than your liquid net worth, it could however be tangled in assets that aren’t easy to transfer into quick cash, which might make you vulnerable in emergency situations.

The cash you have in your savings account is a good example of your liquid net worth.  We can also categorize stocks and other short-term investments as liquid net worth especially since it takes only a short period to convert them into cash.

It is very important that you are able to determine your liquid net worth since not all the asset types can be accessible equally or have equal value. When it comes to a state of emergency, your liquid assets will become your most valuable assets.

Let’s consider this instance:

You are faced with an unexpected medical crisis and a hospital bill of $20,000 hits you suddenly. What would you find more useful at that time?

Is it your car that has a Blue book value of $20,000 or the $20,000 in your savings account?

Since you can access the cash in your savings account immediately and know exactly what it’s worth, then that is more useful to you!

The car on the other hand, if eventually sold, may drop badly in value.

So, since your liquid net worth is only putting your liquid assets into consideration, your liquid net worth will only be a fraction of your total net worth. And that includes assets.

But your retirement assets are considered fixed assets because of the long period required to withdraw them.  And what if your valuables were to be put up for sale, do you think you’ll be able to get top dollar from the sales? Hence, possessions like jewelry can’t be regarded as part of liquid net worth.

Assets are regarded as any of your valuable properties. This can be your cars, money, stocks, and real estate.

Liabilities on the other hand are debts you owe. This could be a mortgage, student loan debt, credit card bills, and auto loans.

Why Is It Important To Know Your Liquid Net Worth?

1. Liquid net worth is important to consider as it helps you to know the state of your financial security.

2. Calculating your liquid net worth helps to motivate you into creating an emergency fund.

3. It will help you to be able to set near term and clear long-term goals.

4. It will serve as a road map to generating wealth for yourself.

5. Your liquid net worth will help you to involve in actual savings and investments.

Here is the formula for calculating your net worth and liquid net worth:

Net Worth = Total Assets – Total Liabilities

Liquid Net Worth = Liquid Assets – Liabilities

Once you are able to determine which of your financial assets are liquid, you’ll be able to differentiate between how you calculate your net worth from how you calculate your liquid net worth.

Liquid Assets

Your liquid assets include cash at hand, bank accounts, and certificates of deposit (CD). But cash – whether bank savings or checking accounts – is more liquid than others. CDs can be regarded as less liquid because of the penalty involved when you decide to do an early withdrawal of your money.

Stocks and stock funds on major exchanges such as the New York Stock Exchange or Nasdaq, or ETFs from top investment firms.

Your stocks and stock funds can be sold almost instantly. You’ll expect the trade to settle in up to two business days after placing your transaction order (T + 2) and having the proceeds turn out as cash in your brokerage account.

Corporate bonds are also regarded as liquid assets. Some trade often, while others barely trade. Investment-grade bonds from leading publicly traded corporations will not be hard to sell. The higher credit ratings (A- and B- level) is what is referred to as ‘Investment-grade’.

Municipal bonds are often not considered very liquid as the bonds are not regularly traded. They are provided by local governments and nonprofits for the funding of public projects like hospitals, roads, and schools.

Photo of a laptop; a non-liquid asset

Non-Liquid Assets

Items categorized under non-liquid assets are such that cannot be quickly converted into cash, especially for their full value.

Retirement accounts like a 401(k) could be withdrawn almost quickly in cash, but their value will drop in cash-form because of the early withdrawal fees that are attached. And for a home, you could sell it, but the cash is definitely not going to come in quickly. That makes it non-liquid.

So, when valuing a non-liquid asset, it is either you calculate their ‘liquid value’ by attaching a percentage in discount to them, or you apply a value of $0 to them.

Here is a list of key liquid assets below with their estimated discount rates.


Cars fall in the list of assets that are unable to hold their value, hence are categorized as non-liquid. While you may be able to sell them fast, however, you need to bring down their value to get a precise figure of what they are worth.

An estimated discount percentage for cars is 15%.

Real Estate

Most of the real estate forms are categorized as non-liquid assets. And here are some of the reasons:

a. Making a successful sale of real estate does not happen instantly. It often requires a pretty long time.

b. Transaction fees such as real estate agent fees and closing costs are usually expected.

c. While there is a well-known value of real estate, there is however, the possibility that your expected selling price will be negotiated down.

An estimated discount percentage for real estate is 25%.

401(k) Assets

You can sell assets within your 401(k) pretty fast just as bonds and stocks. But then, because of the early withdrawal, there is often a penalty fee of 10% that is required. And this penalty fee is also accompanied by any taxes you will be owing.

Estimated discount percentage for 401(k) is 25%.

IRA (Roth or Traditional IRA) and Other Retirement Account Assets

Retirement savings that fall within an IRA can be turned into cash fast just like a 401(k). But the withdrawal move is often accompanied by an early penalty fee.

However, Roth IRAs can accommodate early withdrawal without penalty fees. Hence the contributions you make there can be categorized as liquid assets and are not affected by the discount percentage given below.

Estimated discount percentage for IRA is 25%.

How Can I Improve My Liquid Net Worth?

You can easily get depressed when you see what your liquid net worth looks like when compared to your debts. But then, you should rather motivate yourself and set a road map to help you increase your liquid net worth. Since you now have a figure to work with, here are a few things you can do to help you improve it:

Cut Down On Your Debts Or Liabilities

The quickest way to improve that liquid figure is to cut down significantly on your liabilities. Your liabilities include private loans, mortgages, auto loans, credit cards, student loans, and every other form of debt.  Debts like your credit cards can be negotiated. Besides, debt consolidation is something you can put into consideration.

Interest rates on many credit cards are high. Some are as high as 25% and can suffocate your finances if you aren’t careful. You may want to go for a personal loan instead with their reduced interest rates. This will help you save more cash in the long-term.

Improve Your Savings

It is ideal that you create an emergency savings fund to prepare you for unexpected financial needs that may want to arise in the future. But then, if you already have a tight situation at hand with your finances, here are a few tips you should put into consideration to help you improve your savings:

1.  Create a separate savings account

It is easy for anyone to dip into their money when it is easily accessible. But put it into a different account and financial institution you may want to think again before going there.

2. Cut down on your expenses

For instance, eating out can cost you much more than having your own meals. Meal prep and put that extra cash into your savings account. It doesn’t have to be a huge amount every month. But the little contributions will make a significant figure over time.

Do your minor home repairs, do your home maintenance, find ways to reuse old clothes, borrow or share items you can, ask for discounts, negotiate rents, reduce taxable income, cut down on giveaways, save on electricity, save on internet services, save on transport costs, and also recurring bills. There are a host of decisions you can make to cut down on your expenses.

3. Start budgeting

It can be pretty hard to save if you aren’t keeping track of your personal cash flow. There are several budgeting apps you can consider to do this.

4. Automate your savings

It is helpful if you can achieve your savings goals with little or no effort from you. Harness savings apps and tools to make this a reality and ensure you save from every paycheck you receive.

Start Considering Side Jobs

Thankfully, the new economy embraces side gigs. It has never been this easy to have a side job and earn side money. There are a host of options you can consider to achieve this. You can work as a deliveryman for Postmates, freelance your skills on Upwork, affiliate marketing, create ebooks, start social media management, become a photographer, blog, and you may even rent our spaces in your home on Airbnb! 

But then while you are at it, ensure that you put money aside for your taxes and other recurring expenses.

Start Investing

Investing is something you cannot overrun if you indeed want to increase your liquid net worth and secure your financial future. You can invest in real estate, mutual funds, stocks, or ETFs. Your current situations, earnings, age, and goals will determine what option is best for you.

Wrap Up!

The true measure of your financial security is not your net worth, but your liquid net worth. It determines how ready you are for emergencies and estimates your journey into financial freedom.

Once you are able to find out your liabilities and assets, minus your liabilities from your liquid assets to determine your liquid net worth. This will give you a clear idea of what your finances say about you.

It is advised that you check with this figure every month or quarterly to get a good view of your financial situation. You can update the value of your cars and home once a year. You will be encouraged to watch your liquid net worth go up every time you check as your liabilities go down while your assets increase.

Lily & The DollarCreed Team

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