Email FacebookTwitterMenu burgerClose thin

Net Worth vs. Liquid Net Worth: Definitions and Calculations

Byline profile imageEdited by Mark Henricks
|
Byline profile imageEdited by Arturo Conde, CEPF®
Byline profile imageReviewed by Brandon Renfro, CFP®, RICP, EA
Published on
| fact checked badgeFact Checked
SmartAsset maintains strict editorial integrity. It doesn’t provide legal, tax, accounting or financial advice and isn’t a financial planner, broker, lawyer or tax adviser. Consult with your own advisers for guidance. Opinions, analyses, reviews or recommendations expressed in this post are only the author’s and for informational purposes. This post may contain links from advertisers, and we may receive compensation for marketing their products or services or if users purchase products or services. | Marketing Disclosure
Share

Net worth and liquid net worth are related financial concepts that provide different insights into your financial picture. Net worth represents the value of everything you own minus what you owe, providing a big-picture view of your wealth. Liquid net worth narrows the focus to assets that can be quickly converted into cash, showing how financially flexible you are in the short term. A financial advisor can help you calculate both figures, interpret what they mean for your goals and create a plan to improve them over time.

What Is Net Worth?

When most people talk about wealth, they’re talking about net worth. Net worth is the broadest measure of financial health because it considers everything you own versus everything you owe. By adding up the total value of your assets and subtracting your debts, you arrive at a single number that reflects your overall financial position. This number can be positive or negative depending on whether your assets outweigh your liabilities.

Assets typically encompassed in net worth include:

  • Real estate (primary residence and investment properties)
  • Retirement accounts (401(k), IRA, pensions)
  • Investment accounts (stocks, bonds, mutual funds)
  • Personal property (vehicles, jewelry, collectibles)
  • Cash and cash equivalents

Liabilities included in net worth:

  • Mortgage balances
  • Student loans
  • Car loans
  • Credit card balances
  • Personal loans

How to Calculate Net Worth

The formula for calculating your net worth is simple:

Net Worth = Total Assets – Total Liabilities

To get your net worth, just follow these three steps: 

  1. Total your assets. Include everything you own of value (homes, investments, vehicles, savings).
  2. Total your liabilities. Add up all debts (mortgage, student loans, credit cards).
  3. Subtract liabilities from assets. The result is your net worth.

For example, if your total assets are $750,000 and your total liabilities are $250,000, here’s what your formula would look like:

Net Worth = $750,000 – $250,000 = $500,000

What Is Liquid Net Worth?

Net worth shows total wealth, while liquid net worth shows cash you can access quickly.

While net worth gives you the big picture, liquid net worth is the measure of your financial flexibility. This reflects how prepared you are to handle an emergency, cover unexpected expenses or take advantage of opportunities without borrowing or selling hard-to-move assets.

This calculation strips away the non-liquid parts of your wealth, such as real estate, retirement accounts that carry penalties or collectibles that may take months to sell. What’s left is your liquid net worth: the cash and near-cash assets you can rely on immediately. 

Liquid assets include:

  • Cash (checking and savings accounts)
  • Certificates of deposit (CDs) near maturity
  • Brokerage accounts with publicly traded stocks, bonds, or ETFs
  • Money market accounts

Non-liquid assets include:

  • Real estate (may take months to sell)
  • Retirement accounts with early withdrawal penalties
  • Private business ownership stakes
  • Collectibles and personal property

How to Calculate Liquid Net Worth

The formula is similar to net worth, but with a more restrictive definition of assets:

Liquid Net Worth = Liquid Assets – Liabilities

To calculate liquid net worth, you’ll follow a similar process, but exclude non-liquid assets:

  1. Add up liquid assets. Cash, checking, savings and easily sold investments.
  2. Subtract all liabilities. Mortgages, loans and credit card balances.
  3. The result is liquid net worth. What you could access quickly if needed.

For example, let’s say your liquid assets, including cash and brokerage accounts, total $120,000. Meanwhile, your liabilities include your mortgage, car loan, and credit card, totaling $90,000. Your formula would look like this: 

Liquid Net Worth = $120,000 – $90,000 = $30,000

Net Worth vs Liquid Net Worth: Key Differences

Results of these calculations provide valuable insights that serve different purposes and highlight distinct aspects of financial health. Both numbers subtract liabilities from assets, but liquid net worth paints a clearer picture of how your debt compares to the cash and investments you can actually access in the short term. 

The key feature of liquid net worth is that it includes only assets that can quickly be converted into cash. That excludes assets that may take months to sell or that carry penalties if accessed too soon. This makes liquid net worth a better indicator of emergency preparedness since it shows how much money is immediately available to handle unexpected expenses without relying on debt. 

Net worth, on the other hand, includes all assets, both liquid and illiquid, such as real estate, retirement accounts and personal property. This makes net worth more useful for measuring long-term wealth accumulation and tracking progress toward financial goals. 

Why Both Calculations Matter

Looking at both net worth and liquid net worth provides a more complete picture of your financial health than relying on either number alone. 

Net worth measures whether you are building wealth over time, tracking progress toward long-term goals such as retirement, homeownership or financial independence. Liquid net worth, on the other hand, shows whether you have enough readily available cash and liquid assets to handle emergencies, unexpected expenses or opportunities without relying on debt. 

For example, someone might have a high net worth tied up in real estate or retirement accounts, but if they have little cash on hand, they may find themselves “asset-rich but cash-poor.” 

Bottom Line

Net worth and liquid net worth are used to measure overall wealth and immediate financial flexibility.

Both net worth and liquid net worth are important measures of financial health. Net worth shows your overall wealth, while liquid net worth highlights your financial flexibility and ability to handle immediate needs. Knowing both numbers helps you plan for emergencies, pay down debt strategically and invest for the future. The right balance between the two depends on your goals and stage of life. A financial advisor can help you interpret your numbers, improve both over time and design a financial plan that strengthens your long-term wealth and short-term stability.

Financial Planning Tips

  • A financial advisor can recommend inflation-resistant assets to help preserve your purchasing power. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to build your savings up consistently, consider setting up automatic transfers from your checking to your savings accounts. This approach could help you make saving a routine part of your financial life.
  • If you want to diversify your portfolio, here’s a roundup of 13 investments to consider.

Photo credit: ©iStock.com/Deagreez, ©iStock.com/Chinnapong, ©iStock.com/skyNext