How to Calculate Your Liquid Net Worth (and Why You Should)

Liquid net worth is similar to net worth but doesn’t include assets that are tough to sell quickly and easily.
Last updated July 5, 2022 | By Bob Haegele | Edited By Michael Kurko
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Calculating your net worth is a matter of adding total assets together and subtracting your outstanding debt. A twist to that calculation is to look at your liquid net worth, which leaves out assets you can’t sell quickly, such as your house or car.

Although some methods of calculating liquid net worth include valuable but tough-to-sell assets, most focus on liquid assets you can turn into cash in a hurry if you need to.

We’ll explore what makes up your liquid net worth, easy ways to calculate it, and why it matters for your financial health.

In this article

What is liquid net worth?

Liquid net worth is the total amount of cash and cash equivalents you own minus any outstanding debt. Cash is any physical cash plus any money you have in a bank account. Cash equivalents are assets that can easily be converted to cash you can access within a few business days.

The idea behind knowing your liquid net worth is to assess how much money you would be able to access quickly in the short term. This way, if a need were to arise, such as an unexpected medical expense, you would know what assets you could turn to help cover your bill.

Assets that are included in your liquid net worth are considered liquid assets as opposed to non-liquid assets.

Liquid assets

Examples of liquid assets include:

  • Cash: Any form of cash you currently own, including physical currency as well as money in a bank account.
  • Savings: Money in a savings account can usually be moved into a checking account within a few business days and then accessed.
  • Money market accounts: These are interest-bearing accounts that are typically held at a bank or credit union. Money market accounts tend to earn a slightly higher interest rate than traditional savings accounts but are insured by the Federal Deposit Insurance Corp. and can be withdrawn easily, at any time.

Non-liquid assets

Anything you own that can’t be easily sold — typically, within a few days — would be considered non-liquid. Examples of non-liquid assets include:

  • Cars: Your car might be worth quite a bit, but it can be difficult to sell in a pinch. Even if you sell it quickly, you might be forced to accept less than the car is actually worth.
  • Houses: Real estate is usually even more difficult to sell quickly than cars. Even if you have homes that aren’t your primary residence, there are several fees, such as closing costs and agent commissions, that come with selling a home.
  • Retirement accounts: Your retirement accounts, such as your 401(k) and traditional IRA, might hold investments that are technically liquid, such as stocks and bonds. However, selling investments in these accounts results in a 10% penalty if you withdraw your funds before age 59 1/2. That generally makes them non-liquid until that age.
  • Jewelry and artwork: Items such as jewelry, artwork, and collectibles can be very valuable, but they aren’t exactly liquid. Their exact value can be difficult to gauge, and they can be even tougher to sell.

Net worth vs. liquid net worth

The main difference between the liquid net worth and net worth definition is assets. Net worth includes both liquid and non-liquid assets, whereas liquid net worth only includes liquid assets. When determining either net worth or liquid net worth, you will need to subtract the entire amount of any outstanding debt.

For example, let’s say you’re 40 years old and have a total net worth of $250,000, but the majority of it is in 401(k)s and IRAs. Your liquid assets, in contrast, only amount to $2,500 in cash and savings.

Now let’s factor in debt. If you have $25,000 in debt, your liquid net worth would be -$22,500 ($25,000 - $2,500). Although you’re doing well in working toward your retirement goals, your liquid net worth would leave something to be desired.

Learn more about how to calculate your net worth.

Why liquid net worth matters

Knowing your liquid net worth can help you protect yourself against the unexpected. It’s similar to having an emergency fund but extends the concept to include all liquid assets.

Typically, emergency funds are just the money held in your checking and savings accounts, though a money market account can also be a good choice for your emergency fund. Emergency funds are typically held in these accounts so they can be accessed with relative ease and little-to-no loss in value.

Stocks, on the other hand, could potentially be worth less than the price at which you bought them, depending on stock market conditions. However, stocks held in a brokerage account often have high liquidity and can usually be sold more easily.

By keeping a portion of your assets liquid, you can still build your wealth and cash out any of them on short notice easily if needed. Calculating your liquid net worth can give you a clear picture of how much cash you have access to when the unexpected arises.

How to calculate liquid net worth

The ease of calculating your liquid net worth may vary depending on how many types of liquid assets you own. However, the basic formula is‌:

Total liquid assets - total liabilities = liquid net worth

Liquid net worth example

The tables below show how a liquid net worth calculation might look, starting with assets:

Asset Total value
Cash $15,000
Savings $40,000
Stocks and bonds $100,000
Total liquid assets $155,000

Now, we ‌look at liabilities. Liabilities are all the debt you have that would decrease both your net worth and your liquid net worth. Examples of common liabilities include:

  • Credit card balances
  • Student loans
  • Personal loans
  • Home and auto loans

Although you’re probably making payments on most of these forms of debt rather than paying them off all at once, you still use the total balances when calculating liquid net worth:

Liability Balance
Mortgage $100,000
Student loans $20,000
Credit card debt $5,000
Car loans $10,000
Total liabilities $135,000

Finally, we’ll use both numbers to calculate your liquid net worth.

Total liquid assets $155,000
Total liabilities $135,000
Liquid net worth $20,000

In this example, your total liquid net worth would be $20,000, as you need to subtract your total current liabilities ($135,000) from your total liquid assets ($155,000). This is the amount of money you would have access to, if needed, within just a few days or a week.

Tips for growing your liquid net worth

Growing your liquid net worth is achievable with the right approach. Here are a few tips to get you started.

Create a budget

Learning how to budget your money isn’t just about spending less — it’s also about knowing where your money is going. That knowledge could allow you to move things around and cut back on certain purchases you don’t feel are adding much value to your life. If you need help, you can always talk to a financial advisor.

Increase your earnings

The other way to have more money left at the end of the month is to increase your earnings. You don’t necessarily have to start a business, or an all-consuming side hustle to increase your income, either.

Consider asking for a promotion at work or job-hopping within your industry. Either of these could potentially lead to thousands more in earnings per year.

Live below your means

One of the problems many people run into, particularly as their earnings increase, is lifestyle inflation. This refers to spending more money as your income increases. The result is that you never have much money left at the end of the month, hampering your financial freedom.

Just because you can afford something, should you buy it? If you want to increase your liquid net worth, the answer might be no, assuming it isn’t a need. Continue to challenge yourself to learn how to manage your money better and improve your financial situation.

Avoid debt

There seem to be even more ways than ever to dig yourself into a financial hole these days. For instance, buy now, pay later (BNPL) programs can make that pair of shoes or those cool sunglasses seem a lot cheaper.

But BNPL, which is often advertised as “interest-free,” can have very high interest sometimes. Thus, if you are eyeing something that is a mere want, it’s probably best to avoid buying it if you don’t have the cash.

Earn interest on your cash

A high-yield savings account (HYSA) is a savings account that pays higher interest rates than the national average. They are worth considering because cash tends to lose value over time due to inflation, and earning interest can lessen that effect.

Check out our review of the best high-yield savings accounts.

FAQs

How do you calculate liquid assets?

Calculate liquid assets by adding up all of your cash and cash equivalents. Cash equivalents are things you can convert to cash without much trouble, such as savings accounts and money market accounts. You could also include stocks and bonds if they are held in a brokerage account (but not a retirement account, such as an IRA).

Is 401k part of liquid net worth?

A 401(k) is not typically considered part of liquid net worth. The reason is that these accounts impose a 10% penalty on any money you withdraw before the age of 59 1/2. Although it may be possible to take money from your 401(k) easily, it may not be worth doing due to the penalty.

Is a car considered a liquid asset?

A car is usually not considered a liquid asset. Cars take time to sell, and you may not be able to sell your car for its fair market value in just a few days. Cars may be valuable, but they tend not to be the most liquid asset.

Bottom line

Liquid net worth is the value of your assets that are liquid minus your outstanding debt. The result is all the cash you could reasonably access in a short period of time. This metric is important because it shows how financially stable you are, as well as how much of an expense you could cover at any given moment.

Liquid net worth could also be a good indicator of strong retirement savings. According to the Consumer Financial Protection Bureau (CFPB), 65% of those with at least one month of income saved also have $100,000 or more in retirement savings. That same figure is just 9% for those who have none of their income saved.

Knowing your liquid net worth is important, not just for determining how much cash you can access, but also to gauge your overall personal finance health.

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Author Details

Bob Haegele Bob Haegele is a personal finance writer specializing in banking, investing, and personal finance topics. His work has been featured in Business Insider, CreditCards.com, and Bankrate. When he’s not writing, he enjoys traveling, seeing live music, and listening to podcasts.