Liquid Net Worth: What It Is & Why It Matters

Do you want to know more about liquid net worth? Today we will discuss everything related to liquid net worth and what you can do with it. 

In personal finance, people are always talking about their net worth. What is net worth?

Simply put, net worth is assets – liabilities. When your assets are bigger than your liabilities, you have a positive net worth. When your liabilities are bigger than your assets, you have a negative net worth. 

For many, net worth is the measure of their financial progress and liquid net worth is totally forgotten. 

Liquid net worth is hugely underappreciated and doesn’t get the credit it deserves. 

Do you want to get ahead in your financial journey? Liquid net worth should be what you want to focus on.


It enables you to:

  1. Measure your financial security
  2. Shows the importance of your emergency fund
  3. Get rid of your 9-5
  4. Enjoy financial independence for years to come

In this article, you will learn all about liquid net worth. What is it? How do you calculate it? And how does it impact your finances?

Liquid Net Worth What It Is & Why It Matters

What Is Liquid Net Worth?

Liquid net worth = liquid assets – liabilities. This is a similar formula compared to the regular net worth. The only side note is that your assets need to be liquid to be counted towards your liquid net worth. 

Liquid net worth is the part of your net worth that is in cash or can easily be converted to cash. In case of an immediate expense, liquid assets will be extremely valuable. Rule of thumb: liquid net worth included stocks, bonds, mutual funds, and cash. Retirement account and house are usually excluded. 

This is an oversimplification that needs more explanation. We’ll first discuss what qualifies as a liquid asset and we will discuss some examples like a retirement account or your car. 

Why Is Your Liquid Net Worth Important?

Your liquid net worth represents the amount of money that you have on hand to pay for different things in your life. You could also call it your financial security. Your liquid net worth basically is your advanced emergency fund, that will cover you in the case of unexpected events.

If you are working towards financial independence (FI) or financial freedom, your liquid net worth is what you will eventually want to use towards covering your monthly expenses (making up your FI number). Focusing on this number will give your great benefits down the line.

Want to learn more about this? Reading books like Rich Dad Poor Dad & Think and Grow Rich will help you to get the mindset change you’re looking for.

What Is The Difference Between Net Worth And Liquid Net Worth?

Net worth is all of your assets and liabilities combined. Liquid net worth only looks at your liquid assets and liabilities. That means that things that have less value when you sell them today. For example, if you had to sell your car today, you would have less cash on hand compared to when you would shop around at different car dealerships.

Net worth only looks at the total value of your investments right now, while liquid net worth is looking at the value of your investments if you would sell them in the short term.

That’s net worth vs liquid net worth in short.

What Qualified As A Liquid Asset?

Perfect examples of liquid assets include cash, stocks, bonds, savings accounts, checking accounts, ETFs, and mutual funds. You can access them and within 1-2 business days, you have your money on your bank account. Ready to be spent.

What Are Non-Liquid Assets?

The difficulty of defining liquid assets comes when you’re thinking to include assets that take more time to sell but put money in your pocket eventually. Are that liquid assets or non-liquid assets?

Generally, non-liquid assets would include your home, your car, and any retirement investment accounts that you have. Why? Because selling something like your house will take time, you may not be able to sell it for the full amount of what it’s worth, and there are costs like taxes and commissions to take into account. 

These non-liquid assets will be included when you calculate your net worth. Will they be included when calculating your liquid net worth? That depends on a few different factors. 

Let’s look at the different assets. 

Is A House A Liquid Asset?

Generally, it is not. When you want to sell your house, it takes time, so it is not easily converted to cash. When calculating your liquid net worth, you want to know how much cash you can get for your assets. That means you can ignore the value of your home entirely or you can discount the value of your home to include transaction costs and a lower selling price. 

When you want to sell your house in the short term, there will be costs associated with it. You will need to list your home for a slight discount, depending on the market. Also, you need to pay the costs of selling your house. 

Ask yourself, if your house needed to sell quickly, how much cash would you get in the bank?

That means that a discount percentage should be applied. Assuming the costs of selling are 10% of the value of the house and there is a 10% discount on the price of the house because of the short term selling. That leaves you with 80% of the home value as a liquid asset. 

Is A Retirement Account A Liquid Asset?

Using the definition that we set earlier for liquid assets as it being cash or a cash equivalent, retirement accounts don’t exactly fall under the liquid asset category. 

If you want to access your retirement account before you are 60 years old, you need to pay a penalty (20% in the Netherlands) on top of the regular income taxes. This is a big price to pay and it will take the majority of the value of your retirement savings.

The question you need to ask yourself is: how fast do I want to be able to access my money in order to consider it a liquid asset?

It is up to you if you want to include assets like a retirement account, your home, or your car. If you include any of them, they should be discounted against 20-30% to be on the safe side. 

Your non-liquid assets will hold value, even if you decide that you don’t want to include them in your liquid net worth. What you can do is calculate a liquid net worth including your retirement accounts and house. Compare that with the numbers where your non-liquid assets are discounted to 20-30%. 

Is A Car A Liquid Asset?

Generally, it is not. Sometimes a car can sell quickly, other times it can take a while before your car is sold. The amount of cash you get for your car can widely vary. This is why it is important to discount the value of your car with 20-30% if you want to include it in your liquid net worth.

As with your house and your retirement account, you don’t want to overestimate how much you would get for your car.  

Liquid Net Worth What It Is & Why It Matters

How Is Liquid Net Worth Calculated?

To repeat, your liquid net worth = liquid assets – liabilities. 

Assets include: 

  • Cash
  • Savings and checking account
  • Stocks, bonds, investment accounts
  • Retirement account (reduced by penalties and taxes)
  • House (reduced by 20% for costs and value depreciation)
  • Car (reduced by 20%)

Liabilities include:

  • Student loans
  • Car loans
  • Mortgage
  • Credit card debt
  • Other loans

If you want to track your net worth and liquid net worth the easy way, I would recommend using a tool.

There are two great tools:

  • If you’re outside the US, GnuCash (FREE) is something that you may want to try. Check it out here!
  • If you’re in the US, Personal Capital (FREE) is a great way to track your liquid net worth progress. Sign up here!

When you’re in the process of calculating your liquid net worth, don’t be surprised when your financial situation is different than expected. Calculating this number is a true eyeopener. 

It is important to build assets and check if you’re still on track with your financial freedom plan. 

Calculating Your Liquid Net Worth – Example

If you are looking for a spreadsheet and don’t want an app, let’s look at an example. 

Put all your assets together and calculate how much they are worth right now in terms of the liquid value. 

AssetsValueDiscount ValueLiquid Value
Total Assets$252,000$212,000

After that, add all of your liabilities like mortgage, credit card debt, student loans, and more. Subtract them from the liquid value of your assets. 

If your number is lower than expected, no need to worry. Focus on paying off any debt that you may have (liabilities) side. When you have achieved a positive net worth, continue to work on making that number grow. 

If you’re curious, here’s the average net worth in the Netherlands.

Liquid Net Worth - How To Calculate it & Increase It
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How Can I Increase My Liquid Net Worth?

Now we have looked at everything there is no know about your liquid net worth, let’s go into how you can increase it. Here are 5 tips that will get you started!

1. Pay Off Your Debt

After calculating your liquid net worth, you know exactly how much debt (or liabilities) you have. Paying off your debt is an important factor in increasing your net worth. 

How to pay off debt faster?

  • Make bigger payments towards your debt
  • Increase debt payment frequency

Both of these things will decrease the interest you need to pay. That will make it cheaper for you to pay off your debt. 

Lastly, when you pay off your debt this will free monthly cash flow over time. This cash flow you can use towards paying off debt or investing.

2. Decrease Your Spending

There are a ton of monthly bills that you are paying and probably not even using. I’m talking about things like cable bills or subscriptions. Look for low-cost alternatives for cable TV and check if you even need those other subscriptions. 

Other ways that you can decrease your spending is:

3. Increase Your Earnings

Now you are focused on paying off debt and you have already decrease your spending. What is next? Increase your earnings!

There are two ways to increase your income:

This can be done in a lot of different ways. The most important thing is that you start building up multiple sources of income. You will be secure when something happens to your primary source of income AND you will have additional income every month. 

When you choose a side hustle that you enjoy and make some money, it can give you somewhere between $100s and $1000s a month. 

Some side hustle ideas include:

If you want more side hustles ideas, continue reading here

4. Start Investing

When you are increasing your income and decreasing your expenses, this means that you are increasing your savings. You are saving more and more every month, what should you do with that money?

If you want to make your money work for you, it is important that you are investing your money. It will increase your net worth with an average of 7% per year, without lifting a finger. 

You can invest in stocks, bonds, ETFs, real estate, and more. 

Start learning how to invest here: How To Invest Your First Dollar

5. Start Building Passive Income

When you’re looking to increase your earnings, passive income is something that you can also focus on. It means that you are making money while you are not actively doing anything. 

The ways I build passive income is:

  • Peer-to-peer income
  • Real estate crowdlending
  • Dividends from my investments

Check out: 15 Passive Income Ideas To Try This Year

All In All

Liquid net worth is a very undervalued metric and it does not get a lot of attention. It is very important to realize how much impact your liquid net worth can have on you evaluating your financial situation. 

Calculate your liquid net worth today and see what the results are! 

If you want to improve your numbers, please follow the steps at the end of the article. Specifically, you should:

  1. Pay off debt
  2. Decrease your spending
  3. Increase your earnings
  4. Start investing
  5. Start building passive income

What is your liquid net worth situation?

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Liquid Net Worth - How To Calculate it & Increase It