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If you are trying to plan for retirement, apply for a loan, or save for a major purchase, you may be wondering how much money you have. At the same time, this involves more than the amount of money you have in your bank account. Instead, you might need to figure out your net worth.

Specifically, there are two types of net worth. The first is called liquid net worth, while the second is called illiquid net worth. 

But what is your liquid net worth, and why is this important? Find out below!

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What is liquid net worth?

Your liquid net worth is the amount of money you have in cash or in assets that are similar to cash. For example, the money you have in your bank account is considered liquid. You can access this easily by simply making a transfer. Similarly, investments that you can sell and access quickly are also considered liquid assets.

Before you calculate your liquid net worth, you must deduct your liabilities. Even though this is similar to net worth, it doesn’t include assets that are considered non-liquid or illiquid.

The reason why you want to know your liquid net worth is to know how well you may be able to respond to a financial shock or a financial opportunity. 

couple counting money to see how do you figure out your liquid net worth

That is, you may need to access these sources of cash in the near future. Even though you might have other valuable assets, these might not be liquid. 

Therefore, you may not be able to access them quickly enough in an emergency situation. For this reason, it’s a good idea to monitor your net worth, understand your liquid net worth, and have an idea of where you would turn first in the event of an emergency – or an opportunity.

What is net worth and liquid net worth?

Your total net worth is different from your liquid net worth. Your liquid net worth includes only those assets, like cash, that are easily accessible and sellable. On the other hand, your net worth includes not only your liquid net worth but also your non-liquid (or illiquid) net worth.

When it comes to liquid net worth vs net worth, there are a variety of assets that are included when calculating the latter. This means the assets used to work out your total net worth generally includes:

  • The value of each individual vehicle you have, minus any loans you are still paying off on them
  • The total value of all real estate you own, minus the value of any loans you still have on them
  • The total value of all retirement accounts you have including any IRA, 401k, 403b, or Keogh plan Investments
  • Any financial securities you might own
  • Any cash you might have in your checking or savings account
  • Anything else you own that is of significant value, such as expensive jewelry

Remember that you have to subtract any debt you still owe in order to calculate your net worth. This includes student loans, property loans, personal loans, and credit card debt. This means that if you still have a significant amount of debt, it is possible for you to have a negative net worth.

In addition, if you owe any back taxes, you also have to subtract this amount from your net worth. As long as you pay your taxes on time annually, you should not do any additional money in taxes.

How do you figure out your liquid net worth?

To figure out your liquid net worth, calculate your total liabilities and your total liquid assets. From there, subtract the total liabilities from the sum total of your liquid assets, ensuring that this includes any applicable liquidity discount. The result is your liquid net worth.

Clearly, when it comes to how to determine liquid net worth, you do have to do some math. 

As mentioned, at first, you have to figure out what your total liabilities are, which include anything that you owe. A few examples include:

  • If you still have one or more loans out on your vehicles, you need to subtract the total value of your car loans
  • If you still have one or more mortgages you are paying back, you need to subtract the remaining balance on your mortgages
  • If you have student loans you are paying off, you should figure out what the balance is on your student loans and subtract them from your liquid net worth
  • If you are carrying a balance on your credit card, you should figure out which payments are past due and include them in your liabilities
  • If you owe money on your taxes, you also need to figure out how much money you owe, any penalties you may need to pay, and include them in your liabilities

Related: 15 Incredible Debt Snowball Worksheets to Get Out of Debt

After you have figured out your total liabilities, you need to add up your liquid assets. There are several concrete examples that you should include if you are calculating your liquid assets. They include:

  • Any physical cash you may have on hand, in your wallet, or in a safe somewhere
  • The current balance in your money market accounts, which is a common place where people keep their emergency funds because they usually earn more interest than a savings account
  • The current balance of your checking account, which is usually the first place people draw money from to pay routine bills
  • The current balance of your savings account, which is arguably the safest place to put your money in the bank even if it does not earn a lot of interest
  • Any individual stocks you may own in any portfolio that you can quickly sell and turn into cash
  • Any mutual funds you currently own that you can also sell quickly and convert into physical money
  • Any bonds you may own, including government and municipal bonds, that you can quickly turn into cash
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These are the most common examples of liquid assets people have. In general, anything you can sell (or withdraw) and turn into cash in a few days or less is considered to be a liquid asset.

I remember the first time I was trying to figure out if I had enough money to take out a home loan, I had a difficult time figuring out my liquid assets. I felt like there was a lot of money coming into and out of my bank account regularly. This made the calculation hard. I realized that working my way through an example could be helpful.

Once you take a look at exactly how to calculate your liquid net worth, this picture should become clearer.

Liquid net worth: Example

It might be helpful to take a closer look at a few liquid net worth examples. Here is a quick one:

After keeping track of her bills, a hypothetical individual has the following liabilities:

  • $6,000 in credit card debt
  • $3,500 remaining in car loans
  • $125,000 remaining in student loans

The same individual has the following assets:

  • $2,500 in a checking account
  • $12,000 in a savings account
  • $80,000 in a brokerage account
  • $55,000 in a 401k from work

With these numbers in mind, the potential liquid net worth of this individual is relatively easy to calculate. The first step is to add up all the liabilities. After totaling the credit card debt, the car loan, and the student loan, the individual owes a total of $134,500.

The next step is to calculate the assets. The total value of all the assets listed above, including the checking account, savings account, brokerage account, and 401k, the total value of all liquid assets is $149,500.

woman writing to see what is her net worth and liquid net worth

Finally, the last step is to subtract the liabilities from the total liquid assets. The final liquid net worth of this individual is $15,000.

The individual above is still renting property; however, if there was a mortgage payment, the process gets a bit more complicated. This is because the amount remaining on the mortgage is an additional liability. 

On the other hand, the equity in the home counts towards total net worth; however, it is not included in liquid net worth because it is difficult to quickly sell the property and turn it into cash.

How to monitor your liquid net worth

To monitor your liquid net worth, it can be helpful to set up a monthly statement for yourself. This should include a list of your liquid assets and a list of your liabilities. That way, you can simply enter the values of each at the end of each month to track your liquid net worth.

To go into this in a bit more detail, this monthly statement should include several items, including:

  • Create a list of your liquid assets, which is what you have in your bank accounts, money-market accounts, and brokerage accounts. Try to consolidate your monthly statements from these accounts so they come in at the same time.
  • You should also create a list of your liabilities. This includes any loans you have including your mortgage, car loans, student loans, and credit card debt. Try to set up these statements so they come in at the same time as well.

The point of having these statements come in at the same time is that it makes them much easier to track. That way, you can upload all of these statements into a spreadsheet, making it easy for you to calculate your liquid net worth.

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How to increase your liquid net worth

To increase your liquid net worth, you can reduce your liabilities by consolidating and refinancing your debts, which is often the fastest method. You can also do this by paying off your loan faster, although this does draw on your current liquid assets. In addition, you can increase your liquid assets by spending less money.

Consolidating and refinancing your loans isn’t just good for your liquid net worth. It also helps with your overall debt management as part of your personal financial plan, especially if you’re able to consolidate your loans into a single payment. That way, they’re easier to track, plus you’ll likely have the benefit of lower interest rates overall (and possibly a higher credit score).

couple checking their finances to find a liquid net worth example

This, in turn, will allow you to reduce your liabilities and increase your liquid net worth.

To find out what debt consolidation options are available to you based on your personal circumstances, Credible can show you a range of offers in less than two minutes.

You can also increase your liquid assets by reducing the amount of money you spend as a way to attract money. For this, it may be helpful to create a budget for yourself and see how you can cut your expenses, like by doing a 30 day challenge.

That way, you can figure out exactly how much money you are spending, reduce it, and put more money into your brokerage accounts and savings accounts.

Related: How to Become Rich Overnight: The Strategy That Actually Works

What are liquid assets?

A liquid asset includes any asset that is currently cash or that you can quickly sell and turn into cash. This includes funds held in bank accounts, brokerage accounts and, in some cases, retirement accounts, although there can be penalties for withdrawing from some of these.

In terms of various common examples of liquid assets, these can include:

  • If you have any cash in your wallet or cash in a safe, this is the definition of a liquid asset because you can access it immediately
  • If you have any cash stored in a bank account, including a checking account or a savings account, this counts as a liquid asset
  • If you have any cash in a brokerage account that you can access quickly, such as stocks, bonds, mutual funds, these are usually included as liquid assets as well
  • If you have cash in a money market account somewhere, this is also included in the definition of a liquid asset

Sometimes, when we are discussing liquid net worth, we include retirement accounts as well in your liquid assets. However, keep in mind that if you access your retirement account early, you may have to pay a penalty. Therefore, you should be careful if you are including your retirement accounts in your liquid assets.

man getting cash from his wallet

The common theme above is that all of these assets can be accessed quickly in the event of an emergency. If you have cash on hand, all you have to do is pull it out. The money in your bank accounts can be accessed quickly by simply ordering a transfer or withdrawal.

If you have to sell investments in your brokerage accounts, it may take a few days for the funds to settle; however, this is not a complicated process. You simply have to put in the sell order through your broker.

There are a few common questions people have about additional assets that may or may not count as liquid assets.

Does liquid net worth include your house?

Your liquid net worth does not include your house as it is not a liquid asset. This is largely because they can take some time to be sold in order for their value to be accessed. In addition, consideration must be given of any mortgage over the house, which could actually make your home a liability.

For a lot of people, the house they own is their most valuable asset. Despite this, it is usually not included in the calculation of liquid net worth as property is not sufficiently liquid. 

On the other hand, it will count toward your total net worth (and your illiquid net worth, if you feel like calculating that too), although any mortgage over the house will reduce this accordingly as a liability.

Is a 401(k) considered a liquid asset?

A 401(k) is technically considered a liquid asset, however, this is not the first liquid asset you should draw from if you need money. Given the penalties that can apply to any early withdrawal due to the intended purpose of this account, it is best to only consider this a liquid asset when you reach retirement age.

That is, your 401(k) is meant for retirement. If you draw on your 401k early, you may have to pay a penalty. 

This means that even though you could consider your 401(k) to be a liquid asset, it is probably the least liquid of those liquid assets.

Is a car a liquid asset?

A car is not considered a liquid asset. Even though your car may be worth a few thousand dollars, you cannot access this value quickly given how long it takes to sell a car. Cars also depreciate in value relatively quickly.

That is, it takes a lot of work for you to sell your car and access its value. It may take you a long time to go to multiple dealerships, post an advertisement online, and figure out how much your car is truly worth – and that’s not even mentioning the actual sales process once you do find a buyer.

red car

All this means that if you had an emergency, you probably would not sell your car first in an effort to handle this expense. 

Because of these obstacles, the car is not considered a liquid asset. It takes a lot of work for you to access any remaining value you have in your car.

What counts as net worth?

Your net worth includes everything you own that has value (your assets) as well as any debt you currently have (your liabilities). It is calculated by subtracting the value of any liabilities from the value of all of your assets.

A few examples of items you should include as assets when calculating your net worth include:

  • All real estate you own, such as your house
  • All vehicles you currently own
  • Any expensive jewelry you have, particularly if you have had it appraised
  • Any money you currently have in a checking or savings account
  • Any investments you currently have in your brokerage account including stocks, bonds, and mutual funds
  • Any money you currently have in a money market account
  • All retirement accounts you might have including your 401(k), 403(b), and Keogh plan

This list should include both your liquid and non-liquid assets.

Then, you have to subtract any debts you currently have. This includes student loans, car loans, mortgages, and credit card debt. If you owe money in taxes, you should subtract this as well.

Once you subtract your debt from the total value of your assets, the result is your total net worth.

Is cash included in net worth?

You should include cash in your net worth. If you have cash in a safe, cash in your wallet, or cash sitting somewhere else, that cash has value. Therefore, it contributes to your net worth as an asset, given that your net worth is calculated based on anything you own of value.

You probably don’t have a lot of cash compared to your other assets. However, if you really would like to get a precise number for your net worth, you need to include cash in this calculation as well.

What is the average liquid net worth?

According to the results of the Survey of Consumer Finances released in 2016, the median liquid net worth of households in the United States was $12,050. However, when divided by age group, the median liquid net worth varies from $3,000 for those under 35 to $50,000 for those over 75.

Specifically, when it comes to average liquid net worth by age, the breakdown between age groups is as follows:

  • Under 35: $3,000
  • 35-44: $8,000
  • 45-54: $14,000
  • 55-64: $30,000
  • 65-74: $39,000
  • 75 and over: $50,000

And if you then look more closely in those age groups, the data is also clear that those with college degrees have a far higher median net worth compared to those who didn’t finish high school. This aligns with the fact that people in that demographic are more likely to be worth six figures (or more) overall.

older couple on beach

That probably shouldn’t be surprising. After all, you’ve probably heard of the statistic that  only 39% of Americans can afford a $1,000 unexpected expense.

Put another way: 61% of Americans don’t have $1,000 in liquid assets in case of a financial emergency.

On the other hand, the results of this survey show that the average US household does, apparently, have $12,050 as its liquid net worth. This suggests that many should, at least theoretically, be able to afford that unwelcome $1,000 surprise.

There isn’t, however, a whole lot of wiggle room there, showing that most of us may struggle if that financial emergency suddenly increased in value a bit.

Related: Rich vs Wealthy: What’s the Difference and How You Can Get There

What is the best liquid investment?

The definition of the “best” liquid investment varies based on age. For example, younger individuals who are saving more aggressively for retirement should invest in stocks that have a higher level of risk but also provide greater returns. In contrast, older individuals who wish to protect their savings for retirement may want to transition their investments to bonds.

Bonds provide a much lower return than stocks. At the same time, they are also less risky, so there is a lower chance of elderly individuals losing their retirement savings when they need it most.

Overall, there is no singular “best” liquid investment. It is a delicate balance of the type of return people are looking for on their money while also weighing the risk this comes with, along with having a healthy awareness of your own risk appetite. It might be helpful to meet with a professional financial advisor to develop a strong investment plan.

What is the most liquid asset?

Without a doubt, the most liquid asset is cash. Liquidity is defined as the time it takes for you to access the value of that financial instrument. If you already have cash on hand, you do not need to do anything to access its value. You simply need to access it. 

Keep in mind that cash will also not provide you with any sort of financial return. Cash will not provide you with any interest. To the contrary: keeping cash in hand will actually result in it losing value over time due to inflation.

This is why in order to use cash to make money – or even just to ensure your cash maintains its value – you have to invest it or deposit it in a bank.

What is the least liquid asset?

Real estate is considered the least liquid asset. That is because it could take weeks or months to sell them. Even though your house is probably worth a lot of money, you cannot access this money quickly. You would need to tap into the equity in your home or sell it entirely.

If you want to tap into a portion of the equity in your home, you have to apply for an equity line. However, if you want to access the entirety of the home’s value, you would have to sell it to someone else. This takes time, which is why real estate is not considered liquid.

Final thoughts

Knowing where you stand financially on a number of different points is important for anyone, so having an idea of even your estimated liquid net worth is going to be helpful for anyone.

In particular, if you know what your liquid net worth consists of, this will help you see whether you may want to make some adjustments to increase this amount – or even if it’s too high and you may want to consider investing some of it on your road to financial freedom.

In general, most people probably don’t have a high enough liquid net worth. As you’ve seen, this can be a problem if there’s an emergency, as no one wants to wait impatiently for an asset to sell when time is ticking.

This is why taking the time to assess your finances every now and then can be a game changer. After all, no one expects an unwelcome financial surprise (or a welcome financial opportunity!) – but it’s good to be prepared if there is one.

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About the author

Anna is the founder of LogicalDollar and a personal finance expert, having been featured on Forbes, HuffPost, Reader’s Digest, MSN Money, Yahoo! Finance, CreditCards.com and many more. She’s committed to helping others get on the path to financial freedom using the experience gained from turning $60,000 in debt into a six-figure investment portfolio. Find out more.