Liquid Net Worth: How to Calculate It


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Most of us are continually creating money goals to improve our standard of living. You might know exactly how many months until you’re debt-free, for instance.

One financial metric that’s worth tracking is your liquid net worth. Knowing how much wealth you have can help you plan to retire early or make better money decisions. 

Calculating your liquid net worth is easy when you use the following process.

What is Liquid Net Worth?

Basically, any cash, digital or physical asset you have quick access to is called liquid net worth.

Below is a quick formula to calculate your liquid net worth:
Liquid net worth=Total asset value – Total debt, selling fees and taxes

If you sell everything you own today, the money remaining after paying off your debt, income taxes and selling fees is equal to your liquid net worth.

For example, let’s pretend that you have $200,000 in liquid assets and $30,000 in debt. Your liquid net worth is $170,000. 

How does Liquid Net Worth Differ from Net Worth?

It can be easy to confuse liquid net worth with net worth. Both metrics measure your total wealth differently.

First, liquid net worth is the after-tax value of your cash and easy-to-sell assets.

Make sure you subtract any loan balances you owe on the assets you sell.

Most people don’t consider their primary residence as a liquid asset. If you sell your home, you need to use part of the proceeds to buy a cheaper place. Your remaining cash is a “liquid asset.” 

Next, let’s tackle the question, “What is net worth?” 

Net worth is the total value of your assets minus your current liabilities.  

Your total net worth will likely be higher than your liquid net worth. One reason is that you can include “illiquid assets” that you won’t sell. Plus, you ignore the fees and taxes you pay if you were to sell an asset.

Using a net worth tracker can monitor the value for these three variables:

  • The worth of your liquid assets
  • The value of your illiquid assets
  • Current debt balance 

Make sure you include your retirement accounts and physical assets, such as your home, in this calculation. You may never plan on selling these assets, but they measure your wealth.

After tabulating how much you own, subtract your current debts. Some debt payment examples include your home mortgage, student loans and credit cards.

Positive Net Worth vs. Negative Net Worth

If you have debt, you may have a negative net worth as you owe more than you own. Getting out of debt means you have a positive net worth and no longer “underwater.” 

You also have a positive net worth if your total assets value is greater than the debt you owe. Theoretically, you can sell your belongings and pay off your debt and still have some wealth.

What Qualifies as a Liquid Asset?

Here is a brief list of what to include as a liquid asset:

  • Cash
  • Taxable investment accounts
  • Short-term investments
  • Fine jewelry
  • Collectibles
  • Physical assets you can sell and receive a payment within a few days

Calculating the value of physical assets can be difficult. The Kelley Blue Book value for cars can frequently change, for example. You may have to update the value monthly using an app like Personal Capital.  

Even if you can sell something quickly doesn’t mean it’s a liquid asset. One example is your primary home, unless you sell it and rent or live with family instead. Another example is your primary car, unless you can take public transit for work and errands. 

What are Illiquid Assets?

Some assets you might include in your total net worth include:

  • The house you live in
  • The car your drive to and from work
  • Retirement accounts (401k and IRA)
  • Businesses that you own
  • Tangible assets you cannot quickly sell, such as:
    • Family heirlooms
    • Investment properties
    • Artwork

These assets can take several weeks or months to sell, including a second home you no longer want. In some cases, it can take years to sell without losing money, such as getting out of a timeshare.

Possessions that are difficult to assign a fair market value can be illiquid. 

It’s possible to minimize the value of your illiquid assets by downgrading to cheaper alternatives. You can invest your cash to earn passive income and increase the value of your liquid assets. Making extra debt payments increases your liquid net worth too. 

How to Calculate Your Liquid Net Worth

Here is a step-by-step guide to find your liquid net worth within minutes.

Step 1: Calculate Your Liquid Assets 

The first step is listing your liquid assets and the current market value. 

Cash and Cash-Like Equivalents

“King Cash” is the most liquid asset in today’s economy. You can withdraw it from a local ATM, write a paper check or transfer money to friends. 

Here are the various places you can keep your cash:

Paper cash and your bank accounts are the easiest assets to access and value. You are more likely to pay fees if you redeem bank CDs early or sell gold bullion or crypto.

Stock Investments

You can include stocks and bond investments in your taxable accounts. Selling investments only takes a few minutes, and you can access your funds within a few business days. 

Selling investments is a taxable event, and you might set some money aside for a tax bill. 

While selling investments is a taxable event, you avoid the 10% early distribution penalty that 401(k) and IRAs are subject to. 

If you’re withdrawing from a traditional retirement account, your original contribution was “tax-deferred.” Therefore, you will pay ordinary income taxes on the withdrawal amount. So you will need to deduct the taxes and penalties from the withdrawal amount to calculate your liquid net worth. 

Crowdfund Investments

Investing in alternate assets on crowdfund platforms can be liquid when you can quickly redeem your shares. 

Two crowdfund investments with higher liquidity can include:

  • Small business bonds
  • Private real estate

However, most crowdfund investments require a multi-year holding period to avoid early withdrawal penalties. It can also take several weeks or months to receive your funds.

You should consider small business bonds first if you want instant liquidity. Worthy Bonds earn a 5% annual interest that you can sell at any time without fees. 

Read our Worth Bonds review to learn more about investing in small business loans. 

Crowdfund real estate is another possibility as you’re not buying an entire property and don’t have to get a mortgage. But you might only be able to request redemptions every quarter.  

One real estate investing strategy is to deposit your dividend income instead of reinvesting in open crowdfund projects. Investing in private real estate isn’t true liquid net worth, but you can redeem your principal. Also, you don’t go into debt to invest like buying a rental property.

Physical Assets

Assets you physically own can be a liquid if you can sell them quickly.

Some easy-to-sell physical assets include:

  • Secondary vehicles 
  • Fine jewelry (i.e., gold or diamond jewelry)
  • Collectibles
  • Investment property (i.e., undeveloped “raw land” with multiple purposes)

Jewelry and secondary vehicles can be the most accessible physical assets to sell. For instance, you can sell jewelry online or to local vendors. 

If you own multiple vehicles, the car you don’t need daily can sell easily. The quickest option is going to a local dealership. 

However, you might make more money if you sell it yourself on Facebook Marketplace. You can earn the private party value instead of getting the trade-in value as the dealer must still find a buyer and make a profit.

Step 2: Subtract Your Total Liabilities

You might have a pile of cash in the bank, yet all of that money isn’t truly yours if you have debt. Until you repay your outstanding loans, your liquid net worth can be small.

These loan types reduce your liquid net worth:

After calculating all of your current debts, you can also tally up the fees and taxes you might pay to access your assets. 

As a quick reminder, below is the liquid net worth formula:

The value of your assets – your current liabilities and selling costs=liquid net worth.

Step 3: Track Your Net Worth

Initially, listing your assets and liabilities can be time-consuming. Future updates may only take a few minutes using Well Kept Wallet’s Net Worth Tracker.

Once a month, you can update the current balances of your bank accounts and loans. For physical assets, use the fair market value for your car from Kelley Blue Book or Zillow for your house.

Tracking your net worth can make it easier to plan short-term and long-term goals.

How to Increase Your Liquid Net Worth

There are several ways to increase your net worth. You might try several of these strategies to grow your wealth.

Earn a Higher Interest Rate

As cash is a true liquid asset, earning the best interest rates is an effortless way to boost your net worth with money that may sit idle for decades.

Consider switching from a local bank to a high-interest savings account. You earn more interest and likely won’t pay monthly service fees.

The monthly service fees can cost more than the interest you earn. Your net worth shrinks if your bank fees are higher than your interest income. 

CIT Bank Savings Builder account earns a competitive interest rate. This account has a minimum $100 initial deposit and no monthly account fees.

You receive a higher interest rate when you deposit at least $100 per month or keep a daily account balance above $25,000.

Some checking accounts also earn interest. Once again, CIT Bank can be your all-in-one banking center. Their eChecking account earns interest and has no fees.

You also get a debit card for purchases and can pay bills with online bill pay.

Pay Off Debt

Making extra debt payments reduces your total liabilities sooner instead of later. There are several ways you can pay off debt. 

Debt Snowball Strategy

Having a debt repayment plan can motivate you to get out of debt quickly. The debt snowball is a popular option where you repay the smallest debt first. After paying off the first loan, you shift your extra payments to the next smallest loan balance. 

This debt snowball calculator can help you find which loan to pay first and your debt-free date. 

Get a Lower Interest Rate

Refinancing high-interest debt for a lower interest rate can reduce your total interest charges. Compare your current lifetime interest charges to the potential savings to see if refinancing makes sense. 

Making extra payments helps you save even more cash. Most lenders don’t charge an early prepayment penalty.

Sell Unwanted Items

Another way to get out of debt is by selling the items you have a loan on. This option can be a good one if you don’t need that item. 

And, if the item is worth more than the loan balance, you can keep the cash difference. 

Invest More Money

Assets that depreciate (like most vehicles) or cannot sell won’t increase your net worth. Instead, owning income-producing assets can build long-term wealth.

Even if you don’t have the extra money today, you can invest your salary increases or the newfound money by paying off debt.

Diversification across multiple assets is a good way to manage risk and earn a consistent income. No matter what you choose to invest in, understand how the investment works.

Get a Side Hustle

It’s hard to place a dollar value on time. Productively using your free time can be making money with a side hustle.

Wisely using your side hustle money can boost your net worth and be time well-spent. 

Saving or investing your hard-earned income boosts your asset value. Paying off debt reduces your total liabilities.  

FAQs

What qualifies as a liquid asset?

A liquid asset is one you can sell and receive payment on the same day or within a few days. For instance, it can take several days to transfer funds after selling an asset.

Some examples of liquid assets include:

  • Cash
  • Taxable investment accounts
  • Short-term investments
  • Secondary vehicles
  • Jewelry
  • Physical gold

Cash and stock market investments are the easiest liquid assets to sell and acquire. For instance, a stock exchange sets the share price to buy Apple stock (or sell it). Investors using Vanguard, Robinhood or another broker all see the same share price.

Physical assets that you can quickly sell them to a local merchant can be liquid if you receive a cash payment. Used car dealerships, pawnshops, jewelry stores and gold exchange stores are some examples of places willing to quickly convert your physical assets into liquid cash.

Is a car a liquid asset?

A car might be a liquid asset if you can sell it quickly and do not need to replace it. Some consider a second or third vehicle as a liquid asset. The daily driver you need to get to work or buy groceries isn’t a liquid asset unless you can walk, bike or take public transit. 

However, accurately determining an appraisal value before selling can be difficult. For instance, selling your car may require you to reject several offers before you agree on a price with a buyer.

You might also exclude cars from your liquid net worth value if you owe more on a car loan than the Kelley Blue Book value. 

Is a 401k a Liquid Asset?

Yes, your 401k account balance is a liquid asset, as you can receive your redemptions within a few days. 

But most people omit their 401k balance when calculating their liquid net worth until they retire. This is because you cannot make penalty-free withdrawals until you turn 59½ years old in most cases.

Even if you don’t include 401ks in your liquid net worth, you can count them in your total net worth figure. Personal Capital is one of the best apps to track your investment account values and total net worth.  

Once you retire and can make penalty-free withdrawals, you can include 401ks and IRAs in your liquid net worth. 

When making withdrawals, don’t forget your traditional 401k redemptions are taxable. The good news is that Roth 401k redemptions are tax-free. 

Summary

Calculating your liquid net worth may only take a few minutes and only requires basic math skills. If you already track your net worth, you can quickly find your liquid wealth.

This key financial metric can help you quickly decide if you can afford a major purchase or investment.