Liquid Net Worth and How it Can Impact Your Financial Plan

Liquid Net Worth
A net worth increase for this statistical data report.

When you hear the term Liquid Net Worth, what’s the first thing that comes to mind? Before we go that far, what do you think of when you hear net worth?

For me, I think about some of the richest people in America like Bill Gates, Oprah Winfrey, Jeff Besos, Warren Buffet…to name a few.

But what if being super wealthy was the only criteria for caring about your net worth? I’m here to tell you, understanding net worth is something we all need to get on board with. 

Why would anyone actually need to calculate their net worth?

Understanding your net worth can be extremely useful when you are mapping out your financial plan. It’s a way to assess your current financial position and can be used to help you analyze your financial situation. 

But let’s take that a step further. Understanding your liquid net worth can help you determine how financially stable you are and how likely you are to be able to cover expenses.

How is net worth calculated?

Before we get into the details of liquid net worth, there needs to be an understanding of overall net worth and how it’s calculated. To begin, there are two major players involved in this calculation – assets and liabilities.

Assets are anything you own that holds value that could be sold for cash, could provide a cash equivalent benefit to you, or could generate cash. Some examples of assets are:

  • Cash and/or Bank Accounts
  • Real-Estate (Primary Residence, Investment Property)
  • Investment Accounts (Retirement, Stocks, ETFs)
  • Personal Property (Vehicles, Jewelry, Heirlooms)

Liabilities are, simply put, what you owe. Some examples of liabilities are:

  • Mortgage Loan
  • Auto Loan
  • Student Loans
  • Credit Card Debt

Once you have all your assets listed you’ll need to determine the value of those assets. This can be done by either listing the actual value (i.e. bank balance) or the market value (i.e.value of your real estate if you were to sell it today).

You’ll need to perform a similar task with your liabilities. This process may actually be a bit more straightforward. Since liabilities are essentially the debts you owe, you should know the exact debt obligations for those items.

Once you have values for your assets, and balances for your liabilities, you’ll simply add the totals for each group and subtract your total liabilities from your total assets. Like this:

Assets – Liabilities = Net Worth

Let me just give you a visual.  

Net Worth Example

What is liquid net worth?

Now that you know how to calculate net worth, let’s take that a step further and dive into liquid net worth, pun intended.

As I’ve already mentioned, your liquid net worth goes a step simply calculating values. Calculating your liquid net worth can actually help you understand how well, if at all you can cover immediate expenses.

You see, the liquid net worth calculation uses liquid assets instead of total assets to determine net worth. Liquid assets are those assets that are either cash or can truly convert to cash quickly. Some examples of liquid assets include:

  • Cash
  • Stocks
  • Bonds
  • ETFs
  • Mutual Funds

These liquid assets differ from other non-liquid assets such as your personal real-estate because of the ability to convert these items into cash quickly. 

It takes time to sell real-estate in order to convert that asset into cash. So, in an emergency situation, you wouldn’t be able to rely on the value of your real-estate asset to give you cash. However, you could easily go to the bank and withdraw cash, or sell some of your stocks to get cash. 

When calculating your liquid net worth you simply use the value of your total liquid assets – liabilities. 

Liquid Net Worth Impact on Financial Planning

So what does all of this mean for financial planning? Well, for one thing understanding your net worth and how it’s calculated can help you visualize your overall financial picture. Understanding your liquid net worth can actually help you start to analyze that picture.  

Because of the ability to convert liquid assets to cash quickly, you can use your liquid net worth to determine how well you could manage your expenses down the road. This is a critical step in the financial planning process, and is the reason why understanding liquid net worth can have a significant impact on your financial plan.

Final Thoughts

As you can see, net worth is not just a calculation for the richest people in America. It can be an invaluable tool for a soon to be retiree who wants to make sure they can meet their basic needs in retirement, or a person who wants to start a new business but wants to ensure their family can be taken care of if the business isn’t successful right away.

If you don’t listen to anything else from this article, listen to this. The most important tool you can use when planning your financial future is knowledge of your overall financial position. When you fully understand where you are, you’ll always understand where you want to be.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.


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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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