Net Worth Vs. Liquid Net Worth (How To Calculate Your Assets)

Net worth is all your belongings, including non-liquid assets like real estate and cars, minus all your debt, like mortgages and student debt. Liquid net worth is all the cash you have and can access at the moment. Big items have to hit the market to get liquidated, so they’re often omitted from the calculation.

You’ve probably gotten the net worth result if you ever wanted to sneak a peek into a public person’s finances and see how much they’re worth. But a more accurate image comes to light when you compare their net worth vs. liquid net worth.

Even if you own a $5 million mansion, it’s not a liquid asset. You can use it as collateral to take a loan, but you can’t sell it at the moment. It can be on the market for months or years!

Learning the difference between net worth and liquid net worth is essential for your personal finances. It might be eye-opening to find out you’re stuck with minimum liquid assets!

What is net worth?

Net worth is a simple calculation.

First, take everything you own like cars, houses, rentals, retirement accounts, savings, stock, etc. Then calculate all your debt, student debt, credit cards, mortgage, personal loans, etc. It’s similar to the debt to asset ratio calculation.

Subtract the debt from the assets, and the difference is your actual net worth. Don’t be surprised if it’s zero or even negative! It’s likely to happen if you’re fresh out of college or deal with significant debt. It’s a sign that you need to work on your personal finance, acquire assets and balance your net worth.

Conversely, you might not know that your net worth is that high. Some people lean on their savings and investments as net worth and neglect to calculate the value of their non-liquid assets.

What affects net worth

Net worth increases with age. You can’t expect to have a high net worth if you’ve only in your early twenties. As you grow and prosper in your career, you acquire assets like a computer, a car, a condo or house, art, collectible items, furniture, and your 401k. 

These hold a value that might recede or increase with time. However, if you liquidate them fast, you won’t get the actual price. Likewise, if your liabilities exceed your assets repeatedly, you’re not managing your finances properly.

Look at the national average net worth to get a better glimpse of how your net worth rates among your peers. For example, a family with the oldest member younger than 35 years has a median net worth of $13,900. The average for the same age bracket is much higher, at $76,300.

Build higher net worth

Depending on where in your life you are now, there are a few approaches to increase your net worth.

Start by increasing your savings. Send 20% of each paycheck to savings if you haven’t done it yet. Then, make it easier by automating your savings, known in the financial world as pay yourself first.

List all your debt. Set up a debt repayment plan that you can stick to, but go over the minimum payment.

Your 20s are the perfect time to establish healthy money practices that will increase your net worth with time.

In your 30s and 40s, you’re already earning more, so you can set aside and invest even more money. However, it’s easy to forget about your liabilities and splurge on lavish vacations and impulse purchases.

Your net worth doesn’t increase just because you earn more. Instead, it grows with correct money management.

Calculate your net worth

A man is using a calculator on his phone to calculate his current net worth

The equation is simple; all your belongings – all your liabilities. Let’s see how much you’re worth with this example below.

  • House – $250,000
  • Car – $15,000
  • Cash – $2500
  • Savings account – $10,000
  • Checking account – $4,000
  • Money market account – $10,000
  • Certificates of deposit – $10,000
  • Stocks – $20,000
  • Emergency fund – $8,000
  • Others – $3,000

Your total is $332,500. But what about the liabilities?

  • Student loans – $7,000
  • Mortgage – $150,000
  • Credit card debt – $2,000
  • Car loan – $5,000

Liabilities come to $164,000. Your net worth is $332,500 – $164,000 = $168,500.

How is liquid net worth different

Think of liquid net worth as anything you can cash out at the moment at its real value. This includes your cash, savings and checking accounts, emergency funds, money market funds, and even stocks and bonds in some cases. Then, subtract out all your liabilities. These are the same as with the net worth.

The difference between the liquid assets minus the liabilities is your liquid net worth. And it can be scary. So if the number you see is deep in the negatives, it’s good to look at your lifestyle.

What goes into liquid net worth

But why can’t I add my big items? Sure, they’re bought with your money, but imagine a scenario where you need to quickly sell your $10,000 car.

You post an ad on Facebook Marketplace, Craigslist, or wherever you like. You get a call after call offering $9,500, $9,000, and even $8,000. If you have time to wait, you might sell it at the real price. This makes the car an illiquid asset.

You can add your big items to the liquid net worth by subtracting 20% of their value. This is called the 20 rule, suggesting that you can’t get the actual price on an illiquid asset when you need to sell it within a specific time frame.

Calculate your liquid net worth

Start by listing out all your liquid assets. This may include: checking accounts, savings accounts, emergency funds, money market accounts, certificates of deposit, stocks.

Then list all your liabilities, such as mortgage, auto loan, credit card debt, and student debt. Let’s do an example calculation.

  • Cash – $2500
  • Savings account – $10,000
  • Checking account – $4,000
  • Money market account – $10,000
  • Certificates of deposit – $10,000
  • Stocks – $20,000
  • Emergency fund – $8,000
  • Others – $3,000

Your total liquid assets are $67,500. Your liabilities are the same as before. Your liquid net worth is $67,500-$164,000= -$96,500

If we add the house worth $250,000 minus the 20%, that’s $200,000. Subtracting the mortgage you owe leaves you with $50,000 more towards your liquid net worth. Doing the same with a $15,000 car, you’re left with $7,000 more.

This brings the hypothetical illiquid net worth to $115,500.

This is an indicator of a promising financial situation. It’s still not ideal as you’d have to increase the liquid assets and not be obligated to sell your car and house in case of inconvenience.

Why is liquid net worth important

You must be aware of your liquid net worth because it is the money you can have in your hand today if the need arises. People invested in real estate for ages as the simplest form of building wealth. But it dawned on many how illiquid assets lose value when you need the money urgently.

Take the early days of the pandemic, for example. Many lost their jobs, cutting their monthly income to zero. Even if you have an emergency fund, this situation continues for so long that you can easily spend all of it.

When no one is buying or spending any high amounts in a scarcity situation, it’s hard to sell your illiquid assets. To pay your bills, you rank up your credit card balance.


Why does liquid net worth matter?

Liquid net worth is an essential indicator of your financial health. It shows how much cash you can have on hand within the same day. It’s money you can access without selling, negotiating, or paying penalties.

It matters because it covers your living expenses in unpredictable times.

How can you quickly calculate your liquid net worth?

You can calculate your liquid net worth on your own with a piece of paper and a calculator.

List out all the assets you can cash out today, bank accounts, certificates of deposits, savings accounts, and stocks. Then turn to your liabilities, and sum up all you owe. Your liquid total minus the liabilities gives you the liquid net worth.

If you want to add the illiquid items, you must subtract 10 to 30%, but ideally 20%, of their value.

Is a 401k considered a liquid net worth?

No, 401k is not a liquid asset. To withdraw from a 401k before your retirement age, you must pay a 10% early withdrawal penalty and income tax on the amount.

If you want to withdraw $100,000, you can be left with $70,000 after the penalty and tax.

Bottom line

Financial literacy and net worth are earned and built with age. So don’t feel bad if you have a 4-figure net worth fresh out of college. But use it as a stepping stone to a much higher net worth in your 30s.

Take the median and average net worth for your age and state as guidance. Don’t dwell over people who are worth millions or trust fund babies. Retirement funds and houses are among the most significant assets, so why not start there? You can increase your liquid net worth as you learn more about investing.

I found myself in times where my liquid net worth was my savior. Knowing you don’t have to worry about money in stressful times is comforting.

Have you ever calculated your net worth? What are your weak points?

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