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What Is Liquid Net Worth, and How Can You Calculate Yours?

Understanding what liquid net worth is and how to calculate it can help you better manage your finances.

Chris Scott

Contributing Writer at Tally

March 23, 2022

When it comes to managing your personal finances, there are many concepts, strategies and terms you'll come across. Implementing them all into your financial management strategy may not be feasible, but it's still important for you to have an understanding of what they are and how they can potentially impact you. 

One concept you're likely to encounter is "liquidity." Liquidity is a measure of how quickly you can convert an asset to cash. But how does it apply to net worth? 

Below you’ll get answers to the question, "what is liquid net worth?,” see why it's important and learn how to go about calculating it.

What is liquid net worth? 

Your liquid net worth measures your liquid assets against your liabilities. 

An asset is something you own, and a liability is something that you owe. 

Here’s a closer look at what assets and liabilities are and how they relate to your liquid net worth. 

What are assets? 

As mentioned above, an asset is something you own. Examples of assets you may currently have include: 

  • The cash in your wallet 

  • Money in your bank account 

  • Investment accounts 

  • Electronics in your home, like your smartphone 

  • Your car

  • Your home or other pieces of real estate

A liquid asset is one that you can convert to cash in a relatively short amount of time. Things like the electronics in your home probably wouldn't count — because what if you couldn’t find a buyer? 

Thus, in terms of liquidity, cash is king (or queen). 

Besides cash, the next most liquid asset is likely the money in your checking account, then you have the money in your savings account. 

The money in your savings account is also relatively liquid, but slightly less liquid than the money in your checking account. That’s because of Federal Reserve Board Regulation D, which limits the number of withdrawals you're allowed each month. 

Additionally, other assets that may be liquid include:

Assets that are not liquid are those that can’t be converted into cash quickly. Your home and your car are two examples of non-liquid assets. 

Other examples may include certificates of deposit that haven’t reached maturity or your retirement accounts if you haven’t reached retirement age. 

Certificates of deposit come with time constraints during which you're not allowed to withdraw your money without paying a withdrawal penalty. 

The same is the case for some retirement accounts, like 401(k)s and IRAs. While these assets may technically be liquid, traditional financial management would consider them non-liquid because the cash they contain is not accessible immediately if you need it. 

Now that you have a better understanding of what assets are, here’s a closer look at liabilities. 

What are liabilities?

The other factor in determining liquid net worth is liabilities. This is money you owe, thus, any time you borrow money, it’s considered a liability until it’s paid back. 

Examples of liabilities include: 

Typically, when you borrow money, you’ll owe the principal (the initial amount borrowed) plus interest. Both the outstanding principal and interest you owe are considered part of the liability.

Why is liquidity important?

Understanding your liquid net worth is important, especially if you’re looking to save money and reach financial freedom. 

Liquidity offers stability. Let's say you have an unexpected expense that you need to put on a credit card. If you’re not liquid, you may not be able to pay the balance by your credit card due date. This would result in you being charged interest.

Credit card interest is not only high, but it also compounds, making it more difficult to pay off the balance. 

Being liquid — and storing your money in a rainy day or emergency fund — provides financial security. In the example outlined above, you can use the liquid cash you have on hand to pay for the unexpected expense. You therefore won’t have to worry about credit card debt. 

The more stable you are, the more likely you are to improve your financial health. You can consider yourself financially healthy when your assets are greater than your liabilities — in other words, when your total net worth is positive. 

This means you own more than you owe. A positive net worth opens up avenues with budgeting, saving and retirement planning. 


How do you calculate liquid net worth? 

Before you can calculate your net worth, it’s smart to compile a list of your assets and liabilities.

So, how do you go about determining the total value of your assets? It's going to take a bit of research: 

  • For things like your checking and savings accounts, you can log in to your online account and regard your current balances

  • For assets like your home or car, you may need to get an appraisal for the current market value or look at resources like Kelley Blue Book

Once you compile your list of assets and make note of which ones are liquid, you’ll then compile a list of your liabilities and the amount of money you owe. You can use statements from your lenders to determine your loan and credit card balances. 

Once you know both your assets and liabilities, you can determine your liquid net worth. 

There are two ways to calculate your liquid net worth: 

  1. Liquid Net Worth = Total Liquid Assets - Total Liabilities

  2. Liquid Net Worth = Total Assets - Total Non-Liquid Assets - Total Liabilities

Of the two equations listed above, the first equation is likely easier to use. It doesn’t require you to list all of your assets. Instead, it only requires you to determine the value of the liquid ones. 

Both equations should still yield the same figure for your liquid net worth, but the second one requires you to list out all of your assets and then subtract the non-liquid ones, like your car and home. 

Let’s say you have the following liquid assets: 

  • Cash: $500

  • Checking account: $2,500

  • High-yield savings account: $10,000

  • Money market account: $2,000

If you add these together, your total liquid assets are $15,000. 

Now, let’s say that you have the following liabilities: 

  • Outstanding car loan: $4,000

  • Outstanding credit card debt: $8,000

The sum of your liabilities is $12,000. 

If you subtract your liabilities from your liquid assets, you’ll see that your liquid net worth is $3,000, which is a positive net worth.

Understanding liquidity can help you manage debt

When it comes to managing your personal finances, it's important to understand liquidity. 

In simple terms, your liquid net worth subtracts your liabilities from your liquid assets. If your liquid net worth is positive, you own more than you owe.  

A positive liquid net worth can prevent you from having to take on additional debt. It also provides you with the monetary resources you need for further budgeting, saving and retirement planning.  

One way to increase your liquid net worth is by lowering your liabilities, like credit card debt. And, if you need help paying off your high-interest credit card debt, you can check out Tally†

Tally is a credit card payoff app designed to help qualifying users pay down higher-interest credit card debt quickly and efficiently with a lower-interest line of credit.

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.