In this article, we’re answering “What is liquid net worth?”
In short, it refers to how much money you have left over after you add up your cash, bank accounts, stocks, and bonds, and then subtract any outstanding debts.
We’ll compare liquid net worth directly to total net worth and answer common questions that we receive on the topic below.
This article is part of our free series on private banking and inheritance planning, ranging from finding the best banks in Monaco to expat wealth management, which you can click here to access right now.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is Liquid Net Worth?
- Net Worth vs Liquid Net Worth
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is Liquid Net Worth?
Liquid net worth is what many people consider a true reflection of an individual’s financial health. It indicates how well a person will be able to meet short-term financial obligations in the face of income interruptions and economic headwinds like recessions. Additionally, liquid net worth can indicate how susceptible a person is to changing interest rates.
What Is Considered Liquid Net Worth?
Liquid net worth is the total value of assets that are considered easily convertible to cash. This includes cash, all types of demand and savings bank accounts, certificates, and term deposits, as well as stocks, bonds, mutual funds, and more.
In short, it is the total value of any assets that can be quickly converted to money. However, it’s important to note that to sell certain assets quickly, a discount may need to be applied in the calculation.
Net Worth vs Liquid Net Worth
The main difference between net worth and liquid net worth is that net worth refers to the total value of a person’s assets (both liquid and illiquid) less the total value of any outstanding liabilities that they owe. On the other hand, liquid refers to the total value of a person’s liquid assets less the total value of any outstanding liabilities that they owe.
In other words, liquid net worth refers to the amount of money you would have left over if you only count cash and cash equivalents, and then subtract your debts. On the other hand, net worth also adds into this equation the total value of real estate, retirement funds, and other long-term assets that are difficult or impossible to sell.
Examples of Net Worth
Examples of net worth include liquid net worth, which refers to assets that are easily converted into cash minus an individual’s financial liabilities. It also includes total net worth, which refers to assets that take time or may be difficult to sell in addition to those assets mentioned above, less financial liabilities.
Examples of Liquid Net Worth
Examples of liquid net worth include the total value of bank accounts, money market accounts, stock and bond portfolios, and physical cash. Of course, any other assets that are easily convertible into cash are liquid and contribute to a person’s liquid worth.
Examples of Non-Liquid Assets
Examples of non-liquid assets include assets that are not easily converted into cash on an immediate basis. In other words, there may be a delayed process to sell non-liquid assets, there may be a limited marketplace for the assets, or they may be difficult to sell overall. Examples of non-liquid assets include real estate, machinery, automobiles and equipment, retirement accounts, and much more.
These items are often outlined in estate planning documents such as a will or living trust and are distributed accordingly after a person has died.
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Frequently Asked Questions
Below are three of the most common questions we receive from people looking to understand what liquid net worth is. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Does It Mean If I Have a Negative Liquid Net Worth?
If you have a negative liquid net worth, it means that your total liabilities exceed your cash and cash equivalents. In other words, the total value of your cash and cash equivalents is less than the total value of your outstanding liabilities. That said, this does not necessarily mean that you have a negative net worth, it just means that your assets that are easily convertible into cash are not more than your liabilities.
How Can I Calculate My Liquid Net Worth?
You can calculate your liquid net worth by subtracting your liabilities from your total liquid assets. In other words, you will total your assets under cash and cash equivalents and then subtract all of your outstanding liabilities. The amount remaining is considered your liquid worth.
Can Liquid Net Worth Be Negative?
Yes, liquid net worth can be negative. This can happen when an individual has a greater number in their total liabilities than they do in the value of their liquid assets including cash and cash equivalents. In other words, the person has less cash and easily convertible assets than the total value of outstanding liabilities.
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