What Is Liquid Net Worth And How Do We Calculate It?

It may help to compare your assets and liabilities when you evaluate your financial goals. This is where net worth comes into play. It can help you decide whether to cut your monthly spending, establish a retirement savings account, or adjust your tax withholdings. Total net worth and liquid net worth are the two main types of net wealth. A financial advisor is the best person to help you grow your wealth by helping you to manage your investments and create a financial plan.

Liquid Net Worth Defined

After subtracting your liabilities, your liquid net worth is how much money you have in cash or cash equivalents. It is very similar to net value, except that it does not account for non-liquid assets like real property or retirement.

However, liquid assets and non-liquid assets will affect your total net worth. This means that you will need to add up all of your assets including vehicles, property, and retirement accounts. Then, subtract your liabilities from the sum. Your net worth will be negative if your liabilities exceed your assets. If your assets are more valuable than your liabilities, you will have a positive net value.

One must pay any financial liabilities. These could include student loans or car loans, as well as credit card balances and taxes. You should not include the liabilities of a business that you own in your personal net worth.

Analyzed And Identified Liquid Assets

Any cash or assets that are easily convertible to cash are called liquid assets. Cash, money market accounts (checking accounts), and savings accounts are all examples of liquid assets. Although there is much debate over this, many people consider stocks, mutual funds, bonds, and other securities that can be quickly converted into cash as liquid assets receivable.

Two key metrics are used to gauge liquid assets. Both are useful for businesses but also have applications for individuals. The quick ratio is the first. It is a measure of how well a company can pay its short-term liabilities (such as debt payment, payroll, inventory costs, etc.) with its cash on hand.

Cash can be either cash-like assets or actual cash. Traditional cash-like assets are liquid properties that the company can sell off such as stocks, and near-term revenues such as accounts due to collection. These assets are what give the quick ratio its name. The quick ratio is the ratio of all liabilities due in the next year to all liquid assets and revenue due within that year.

Another option is the current ratio. This compares a company’s current assets with the debts it will have to repay within the next year. This is simply done by subtracting the company’s cash and easily convertible assets from its short-term debts. You can then draw inferences about the company once you have calculated the current ratio.

Liquid Net Worth Calculated

Calculating your liquid net worth is as simple as taking the sum of all your liabilities and subtracting it from your total liquid assets. You should consider the liquidity discount of some liquid assets when you calculate your final liquid net worth.

Let’s take, for example, $35,000 in cash and $130,000 in brokerage accounts. $95,000 is in a 401(k) account. These are your only liquid assets. Your total liquid assets will be $260,000. The total amount of your liabilities is $42,500 if you owe only $3,500 in credit card debt and $39,000 in student loan repayments. Subtract that from $260,000 and you get $217,000.

Tips To Increase Your Net Worth

  • If you have a need for liquid wealth, a financial advisor can help you increase it or decrease it. It doesn’t take much to find a qualified financial advisor. It doesn’t take much to find a qualified financial adviser. You can also use the Prillionaires net worth calculator to get a user-friendly and, at the same time, comprehensive calculation of your net worth.
  • There are several ways to increase your money security, whether you have a low net worth or you want to build your assets. Budgeting is one.

The Bottom Line

Liquid assets can be described as cash or cash equivalents, which can be quickly and easily converted into money. When calculating your liquid net wealth, you will subtract your liabilities from these assets. It may be useful to also calculate your net worth for budgeting purposes. This will allow you to see your financial situation in a holistic way. A financial advisor can help you to understand your net worth, grow your wealth, and manage your assets. They will also help you choose where to invest.

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