Liquid Net Worth: What It Is, How To Calculate, Tracking & More

saltmoney author
By: Michael Restiano
Updated On: February 28, 2022 is reader-supported. When you buy via links on our site, we may earn an affiliate commission at no cost to you.

Wonder what exactly is liquid net worth? Liquid net worth, also known as LNW, is the difference between your assets and liabilities. It's calculated by subtracting the value of all your debts from the value of all your assets. This number can tell you a lot about an individual or business's financial stability, so it should be tracked closely in order to know when trouble may arise. In this article, we will discuss the liquid net worth definition, how it's calculated, and more!

What Is Liquid Net Worth?

Liquid net worth is a metric that tells you the balance of liquid assets and liabilities. It's calculated by subtracting the value of all your debts from the value of all your assets.

In simple words, liquid net worth is the amount of money you have at your disposal. The easiest way to calculate liquid net worth is by tracking all of your assets and liabilities that are easily converted into cash (non-liquid). The difference between the two numbers will tell you what's left, which would be considered liquid net worth.

The liquid assets that you should include in your calculations are cash, checking and savings accounts (money market funds), stocks, bonds, certificates of deposit, or any other significant investments. Liabilities to consider may come from outstanding credit card balances or auto loans among others.

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Why Liquid Net Worth is Important

Liquid net worth is an important measure because it helps you gauge how much money you have available to spend, save or invest.

The liquid assets that are used for calculating your liquid net worth should be those of which can be easily converted into cash. These would include stocks and bonds as well as other investments such as certificates of deposit (CDs).

When your liquid net worth is positive, you have the ability to spend more money. When it's negative, you'll need to work on saving or investing in order to make up a deficit and return yourself back into the black.

Most people want their liquid net worth to be higher than when they started out each year.

We recommend using liquid net worth as a measurement to help you reach your goals. For more insights into what liquid assets are, how they work, and the best ways to leverage them for success, continue reading this article.

What Are Liquid Assets?

Liquid assets are things that you can turn into cash. You can use them for emergencies, and they are a good way to save money. Examples of liquid assets include cash, money market accounts, checking accounts, savings accounts, bond, and stocks.

You may be taxed on them. You have to pay taxes for any capital gains (money). You need to think about this when you calculate what is left of your money.

What Are Non-Liquid Assets?

Non-liquid assets are things that you cannot turn into cash right away. You can use them for emergencies, but they're not as good of a way to save money because it takes time before the emergency happens. Examples of non-liquid assets include your home, car, and other belongings like furniture or appliances.

You may be able to borrow money from home equity or sell your car to have liquid assets.

Non-liquid assets and other income-producing assets would be included in your net worth, but not in your liquid net worth.

Real Estate

While real estate is non-liquid, you can borrow against it to create liquid assets. You may pay a higher interest rate on the loan if your money isn't being used for producing income.

Utilities are included as part of real estate and not counted in liquid net worth because they cannot be turned into cash quickly.

Average Real Estate Discount Percentage: 30%

So, when you are calculating your liquid net worth, you have to confirm how much cash you could get for your assets.


You can sell your car to count it as liquid assets. However, the vehicle is used in a lot of cases for transportation so you might not get an offer that is worth what you owe on it if there are other cars available.

Average Car Discount Percentage: 15%

401(k) Assets

Your Assets within your 401(k) account depend on your employer. Some employers offer you money if they want to let go of employees while others don't allow for early withdrawal at all so the amounts will vary from person to person.

If there is a special circumstance such as death or permanent disability, it may be possible to withdraw assets without paying an additional penalty.

401(k) Discount Percentage: 30%

Retirement Investments

Just like real estates asset, retirement investments are non-liquid assets. This is because you will not be able to withdraw the money until it's time for your retirement and then use that cash to purchase an asset or pay off a debt.

You can, however, turn those liquid financial instruments into other liquid assets by borrowing against them from your 401(k) plan if you have one, or from a home equity line of credit.

The difficulty for the liquid net worth calculation is to ascertain how much money the person would get in return were they to sell off their investments and use that cash to purchase an asset or pay off debt.

How to Calculate Your Liquid Net Worth With an Example

It is a simple math calculation to figure out your liquid net worth. To calculate it, simply subtract the amount of all non-liquid assets from the total value of all liquid financial instruments and cash on hand.

Liquid Net Worth = Liquid Assets – Liabilities

In Liquid assets we can include:

  • Cash( Including Checking Account)
  • Savings and Checking Accounts
  • U.S. Treasury Bills or Notes (T-Bills)
  • Car ( subject to your definition or use the undervalued amount)
  • Jewelry or collectibles
  • Arts with some value
  • Mutual funds, stocks, and bonds

In Liabilities we can include:

  • Mortgage or Loan (includes home equity loan, second mortgage, and auto loans)
  • Credit Card Debt
  • Unpaid Taxes/Utilities/Subscriptions
  • Car Loan
  • IRA & 401K (subject to tax treatment)
  • Student Loans
  • Other Debts or Liabilities.
  • Personal loans

Calculating Liquid Net Worth: Example

This is really simple to do, just use a sheet and punch all the details there as shown in the image below. Here I will give the breakdown of each asset and how I have calculated its worth.

The House

It is not easy to sell a house within 24/48 hours, so we are going to discount the price with 30% as A typical home sale usually involves real estate agents and other costs, depending on the seller's preference.

When you are looking to sell a house or other real estate, there is no guarantee how much the buyer will offer and it may take up to a couple of months until the sale closes.


The market price for a new car is usually discounted by 20%. So, we will use it in this example.

Investments in Stocks and Bonds

In this case, we will use the liquidation value. In general, it is advisable to sell investments with low liquidity in order of priority (i.e. stocks before bonds and so on).

What this means is that I am not going to make any effort or spend my time trying to find out what they are worth right now. I am going to take the value that is about right for stock in a liquidation scenario (i.e. selling everything).


This account is for your retirement. When you start to withdraw money from this account, it will be taxed at marginal income tax rates plus a possible penalty fee of $50 per withdrawal before 59.5 years old (this number may vary depending on what state you live in).

So if we take our example and say that the 401k has $100,000 before taxes and penalties, then we would have to pay a 15% tax rate on the $100,000 ($15,000), plus any other fees.

The liquid net worth equation can be used in many ways: It is an excellent starting point for establishing goals so prospective clients want to hire you as their financial adviser; it

Roth IRA’s

In a Roth IRA, you save with after-tax dollars and the money grows tax-free.

Therefore, if we assume that this is an investment account, then to calculate its worth it would be:

Amount in Account (Roth RIA) x (value of one share)/(current price per share - purchase price). If you take your money out of the account before you are 59.5 years old, you will have to pay 10% of the gains and taxes on the profit at your marginal tax rate. So, if you have $25,000 in your account then you can withdraw only $25000- 10% off $25000 = $22500.

Tracking Liquid Net Worth

The liquid net worth includes assets that are easily converted to cash, such as savings account balances and mutual funds.

We should also include the value of our home in this calculation if we're going to use it for a down payment on another property.

In other words, you want your liquid net worth number (including any equity from your home) to be at least twice the amount you want for a comfortable retirement.

Benefits Of Tracking Our Liquid Net Worth

  1. You can assess your current net worth and see how it changes over time. If this number is decreasing, then you should take action because that might mean there's an emergency on the horizon (e.g. you're living paycheck to paycheck).
  2. You can see how liquid net worth changes over time, which will help you make more informed decisions about your investments.
  3. One of the main benefits is that it helps us stay on top of our goals and priorities so we know where to put our money when it comes time for investing. If we want to buy a house in five years, it's good to know how much liquid net worth we'll need and where we can get that money.
  4. Tracking our liquid net worth is an easy way for us all to stay on track with financial goals.

Increasing Liquid Net Worth

So, now we know what liquid net worth is and how we can calculate it. But how can we increase liquid net worth? So, now I am going to tell, how we can increase the Liquide net worth with some Tips:

1.Increase Your Earning

The most obvious way to increase liquid net worth is by earning more. When we start making more money, our assets become higher and so does the liquid net worth.

You can also earn more by finding a better job or investing in something that will generate passive income.

In both cases, it helps if you're disciplined about saving and not spending your money on unnecessary things.

Passive income might be the easiest way to increase your liquid net worth. If you have a job that pays well but requires lots of time and effort where there is no opportunity for growth - it's probably best to start looking into passive opportunities.

Review Your Annual Costs

Start by looking at your annual costs. The easiest way to increase your liquid net worth is if you have an expense that can be eliminated or a lower quality product that can be replaced with something higher quality. In other words, if you're spending $300 on cable every month, you're spending $3600 a year on that cable service. Wouldn't it be better to invest in your liquid net worth by taking the money and investing?

There are many small changes we can make each day or week that will have a significant impact over time. For example:

  • Use reusable water bottles instead of buying bottled water
  • Eat out less
  • Use a filter to save money on coffee and tea

These three small changes will have saved you $1200 this year. Imagine what an impact it would make if we were able to apply these types of principles over the course of days, weeks, or months? It might be time for some liquid net worth investment planning!

Start Investing More

You can also increase liquid net worth by investing more. If you're not an active investor, it might be a good idea to start looking into what your options are in terms of stocks and bonds. You should invest enough money that the returns on investment will outweigh the costs associated with them over time.

A lot of people have made their liquid assets grow by investing in stocks and bonds. You can do so by cutting on your expenses and then investing those savings in the market or in bonds.

Reduce expenses

Reducing expenses is another way to increase liquid net worth. Not only does this mean you have more money to invest, but it also means that you're paying fewer taxes on the profits because of what's known as a lower taxable income.

If your debt load is too high and is causing anxiety or stress in your life - reducing expenditures might be the only option.

Review and Reduce Your Liabilities

You can also increase liquid net worth by reducing your liabilities. This is a simple but not easy way to do it, because you have to work on paying off what you owe and get those debts out of the picture.

It will take time for this method to generate results - probably at least a few months unless you are aggressively trying to pay off your debts. But the good news is, once you get them paid off, this liquid net worth strategy will be really effective.

Final Words

Keeping track of our liquid net worth is important when it comes to judging our financial stability, and growing your liquid net worth helps achieve financial freedom early on in life.

We hope we have been able to clear all your doubts regarding the topic of liquid net worth and how important it is when it comes to making decisions regarding your financial stability and growth.

Your liquid net worth determines the funds you have in the time of an emergency. Hence, it is essential to keep track of it and grow it as much as possible to be financially independent early on in your life, and having a good liquid net worth also enables you to handle any financial crisis like the loss of a job without putting you in a tough situation.