Liquid net worth: What it is + how to calculate

Liquidity in finance refers to how accessible the cash value of an asset is. So, what’s liquid net worth? It’s your total cash or cash-equivalent net worth – essentially what you have or could have available to spend in the immediate future – minus liabilities.

Think using your debit card vs. selling a house. You may have a $100,000 net worth, but you won’t have much money in your checking account to cover an emergency if all of your wealth is tied up in home equity. 

How to calculate liquid net worth

Calculating liquid net worth uses an easy formula: 

• Total liquid assets - Total liabilities = Liquid net worth 

Your “total liquid assets” is the value of your assets combined, including stocks, bonds, checking account balances, etc. Use your best judgment to determine which assets you consider liquid based on your needs since fluidity varies. 

For example, you can exclude fairly liquid assets like stocks when calculating how much money you could pull within 12 hours for an emergency. In this case, stocks aren’t liquid enough for your needs. 

Determining your net worth is easier if you track your assets and liabilities from the get-go. Use the spreadsheet below to total your assets and automatically calculate your liquid net worth.

It’s also smart to work with a financial advisor to help you identify your goals and adjust your budget for the proper balance of liquid vs. nonliquid assets. 

Total net worth vs. liquid net worth

Net worth is the total value of your assets minus your liabilities. If you have $250,000 saved and still owe $30,000 in student loans, your net worth is $220,000. 

Liquid net worth only counts liquid assets. Let’s say you own $5,000 in art and a $100,000 condo. You’ll subtract those nonliquid assets from your net worth, leaving liquid net worth of $115,000.

Total net worth doesn’t show the complete picture, and liquid net worth is a much better representation of spending power. It’s a valuable metric when building your budget since it’s how you pay your regular expenses and other short-term needs that pop up. 

Liquid asset examples

An asset’s liquidity is more of a spectrum than it is a binary categorization. The most liquid assets are immediately available to spend, like cash. Investments like stocks are also liquid because you can convert them to cash within days, but that’s not nearly as liquid as cash..

Two assets can be liquid, and one can still be more liquid than the other. Here are some examples based on liquidity to clarify:

Extremely liquid assets – immediately accessible within a day:

• Cash
• Checking accounts
• Savings accounts
• Money-market accounts

Fairly liquid assets – fairly accessible within days or weeks:

• Stocks
• Bonds
• Mutual funds

Nonliquid assets – harder to turn into cash, whether because there’s less demand, they take longer to sell, or they come with heavy fees or restrictions:

• Real estate
• Collectibles
• Age-restricted retirement investments (401(k), IRA)
• Cars

Grow your liquid wealth

Liquid net worth impacts your lifestyle and comfort, making it an important factor in your budget. 

Everyone wants extra cash, and there are many ways to boost your liquid wealth.

Reduce debt

Paying your debts reduces your total liabilities, increasing your liquid and total net worth. This is a great financial move since it reduces your monthly payments and total interest paid.

You can try the avalanche repayment method and focus on your highest-interest debt first to reduce how much interest you pay overall. The snowball method is also popular, and you instead focus on your smallest debts to maintain motivation and lower your principal debt more quickly. 

Build your emergency funds

Liquid wealth is especially valuable as a safeguard during emergencies. It’s easily accessible cash, but it doesn’t mean you can afford to spend it all at once. 

An emergency fund boosts your liquid net worth and dedicates the funds for emergencies, so you don’t have to drain all of your liquid assets on a rainy day. Three to six months of expenses put aside is a standard emergency savings goal. 

We recommend keeping an emergency fund in an online high-yield savings account. These offer greater interest rates than many traditional accounts, and they’re still highly liquid. 

Invest wisely

Stocks and bonds aren’t as liquid as your checking account, but you can still sell these assets within a matter of days. 

Some stocks also pay dividends as passive income, which automatically increases your liquid net worth. You can reinvest returns to accelerate your growth or route the money to other purposes like your emergency fund or child’s college savings. 

How you invest also impacts your tax liabilities. For example, you can hold a stock for more than a year to benefit from lower long-term capital gains tax rates. 

Tax-loss harvesting, charity donations, and tax-deferred retirement contributions are 100% legal ways to reduce the taxes you owed. Chat with a professional advisor to improve your tax strategy. 

The Playbook take

Liquid net worth is an available cash-equivalent value for short-term needs, like shopping or an emergency. It’s a metric to determine your spending power and an important consideration in your budget. 

Consider ways to reduce your liabilities and invest in liquid assets to improve your financial well-being and flexibility.