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Net Worth vs. Liquid Net Worth: What’s the Difference?

Net worth and liquid net worth might sound similar, but they show different sides of a financial situation.

March 28, 2022

Have you ever heard someone complain about being “asset rich” but with no cash in the bank? It might sound strange at first, but it’s possible to hold a lot of wealth without having immediate access to it. This is the core difference between net worth vs. liquid net worth. 

If you’re still not sure what we’re getting at, don’t worry. We’ll give you a detailed breakdown of net worth and liquid net worth, why they matter and how to calculate them.

Net worth vs. liquid net worth

“Net worth” is a familiar term to most. We use it to describe an individual’s total wealth, but in technical terms, the definition is total assets minus total liabilities. 

In short, assets are items of value (e.g., investments, real estate, certificates of deposit, collectibles, etc.) and liabilities are debts (e.g., student loans, credit card debt, mortgages, etc.). Most people have a mixture of both.

But what about liquid net worth? In the financial world, liquidity refers to how quickly you can convert an asset into cash. If you needed to buy something right this second, how much of your money would you be able to access?

Liquid net worth is all about the value of the assets you can access instantly. To find it, just subtract your total liabilities from your total liquid assets (more on this below).


Which is more important?

You hear people talk about net worth far more often than liquid net worth in everyday life. But does this mean the liquid version is less important? Not at all.

Why net worth matters

Your net worth is a useful tool for understanding your financial health, including how much wealth you have at your disposal. For instance, knowing the total value of your assets can help you plan for retirement or figure out how to pass on inheritance to loved ones in the most tax-efficient way. 

Why liquid net worth matters

Liquid net worth is a helpful term for figuring out how your financial situation will fare over the short term because it’s about the money you have at your disposal now. You might have hundreds of thousands in your IRA, but if you can’t access it until you reach 59.5 (without penalties), it’s not useful in the short term. 

Many personal finance experts will tell you that an emergency fund is essential. The whole point of an emergency fund is that it’s quick and easy to liquidate when you encounter an emergency; in other words, it increases your liquid net worth. 

As a rule of thumb, it’s recommended to have around six months’ worth of your expenses readily available in an emergency fund.

In summary, depending on your priorities and where you are in life, one metric might be more relevant to you than the other, but both are very important.

Calculating your net worth

To make a net worth calculation, you just have to rewind a little to our definition of net worth: The difference between total assets and total liabilities. Therefore, a net worth calculation involves finding the sum of both categories and then subtracting your total liabilities from your total assets. 

Common assets include:

  • Retirement accounts

  • Checking accounts

  • Savings

  • Investments 

  • Items of value (e.g., a car, your home or jewelry) 

Liabilities include:

  • Student loans

  • Personal loans

  • Car loans 

  • Credit card balances

  • Mortgages

Depending on the complexity of your finances, compiling these lists and their values may be simple or may take a little more work. Finding the value of assets like checking accounts or liabilities like loans is fairly straightforward. Simply log in to your account and make a note of your current balance. 

However, it’s not always easy to figure out the market value of a physical item because you don’t know for sure how much someone is willing to pay for it. To overcome this problem, you could ask an expert to appraise items like jewelry, collectibles or your home. 

Calculating your liquid net worth

To find your liquid net worth, total up your liquid assets and subtract the liabilities you identified above. 

The big question here is: What exactly is considered liquid? This is more complex than it seems at first. Some things are obviously liquid, like the money in your wallet and anything in an account that gives instant access (such as a checking account or money market account).

But you can also include assets you can quickly sell, known as cash equivalents. Mutual funds, exchange-traded funds (ETFs) and cryptocurrencies fall under this category, but your antique furniture doesn’t. 

For example, you might have:

  • $5,000 in your checking account

  • $100 in your wallet 

  • $500 in a savings account

But also have:

  • $1,500 of credit card debt 

  • A student loan balance of $3,000

In that case, you’d have a liquid net worth of $1,100 ($5,600 minus $4,500).

How to increase your liquid net worth

As we’ve touched on, your liquid net worth is a key tool for ensuring financial security. If your liquid net worth is lower than you’d like or you have a negative net worth, two ways to change that are paying off your debt (lowering your liabilities) or boosting your earning potential (increasing your liquid assets).

Pay off debt

Liabilities are a key part of the formula to calculate your liquid net worth, so reducing them will increase your number. Paying off debt will also help you save money faster since less cash will be going toward debt payments. 

It’s not easy to cut down your debt, but a good place to start is by comparing the annual percentage rate (APR) you’re paying for different loans. Then, focus on making extra payments toward the loan with the highest APR. In many cases, it’ll be your credit card.

You could also consider refinancing your debt to secure a better APR, which may lower your payments and possibly make the debt easier to pay off.

Increase your earnings

More earnings mean more money to save and add to your liquid net worth. Increasing your income is easier said than done, but you don’t need to land a six-figure job to improve your situation. Even just earning a few hundred dollars more each month can make a huge difference if that’s money you can put into savings or liquid assets.

If you’re looking for additional work, the gig economy is a great place to start. You could create infographics on Canva and sell them on Fiverr. Or maybe you could become a personal shopper for Instacart and make money by delivering others’ groceries. There’s sure to be something to match your skill set and schedule.

Cash is king

Knowing your net worth can be a useful tool for long-term financial planning, but your liquid net worth demonstrates how healthy your finances are in the immediate future. Both things are important. You need to save for the future, but don’t put all of your money into retirement savings while forgetting to protect your present self.

Credit card debt is a liability, so paying it off is one way to give your liquid net worth a boost. If you need help, consider the Tally† credit card repayment app. It consolidates your higher-interest credit card debt into one lower-interest line of credit, which can make it easier to gain control of your finances.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.