What Are Liquid Assets?

Liquid assets are things that can be quickly converted into cash without losing value. These come in many different forms, such as cash, stocks, other marketable securities, money market funds and more. Liquid assets are different from their illiquid or fixed counterparts. These are investments that take much longer to convert to cash, typically due to a lack of buyers.

A financial advisor can help you determine how much of your assets should be liquid.

What Kinds of Assets Are Liquid?

Think about what assets you have within easy access that, if needed, could pay for something within a relatively short amount of time. Some examples of these liquid assets are cash, checking accounts, savings accounts and some investment funds.

Knowing the total value of your liquid assets can be especially helpful if you’re struggling to pay for something in a sudden pinch. That makes them especially valuable additions to your emergency fund. Let’s take a look at the two most common types of liquid assets.

Cash and Cash Equivalents

Cash is your most liquid asset because you don’t need to take further steps to convert it – it’s already cash. You can use it to pay for a good or service immediately and also use it to settle any outstanding debts. Cash is usually held in checking accounts, savings accounts or money market accounts. You can withdraw money from them quickly in order to pay for debts or other liabilities.

Other funds, like a trust fund, tax refund, court settlement and some certificates of deposit (CDs) are included within the designation of cash-like accounts. Even though they are not cash, they can be relatively easy to convert into cash so that you can go through with a transaction as quickly as possible. In the case of a CD, note that it depends on the rules of the account; in many cases, there is a punishment for withdrawing your money before the term has elapsed.

Taxable Investment Accounts

If you have a variety of different investment accounts, you can liquidate them and convert them into cash a little less quickly than some of the accounts mentioned above, but still within a reasonable amount of time. Investment accounts can turn into cash within a couple weeks or months and are therefore firmly liquid assets. Investment accounts can contain a variety of securities, including:

Stocks
Bonds
Money market funds
Mutual funds and other types of stock market investments

While investment accounts are liquid, you shouldn’t rely on them in the same way that you rely on your cash accounts. That’s because investments in securities involve a risk of loss, meaning you could lose some of your money if the market goes down. You can liquidate your investments, but you may not get as much cash as you put in.

Generally speaking, only taxable investment accounts are considered truly liquid. That’s in contrast to tax-advantaged retirement accounts, which vary in liquidity but generally limit your ability to liquidate your assets. IRA plans cannot be considered liquid if you haven’t reached the qualifying retirement age, because you’d still be obliged to pay the IRS early withdrawal penalties. But you can claim a hardship withdrawal if your situation warrants a waiver of the 10% penalty for an early withdrawal.

Cash Equivalent Business Assets

Businesses have liquid assets that are cash equivalents, or that can be sold for cash pretty easily. Some examples of these assets are accounts receivable and inventory. With accounts receivable, it is cash that customers owe the business. You can get financing based on this amount that is owed and you should be able to collect all or most of that amount in the future.

Inventory, it is a good that has a certain value that can be sold for cash. Both of these assets are typically appraised at a lower value than the value of the business attributes to each because both have to be converted to cash.

Liquid Assets vs. Fixed Assets

An image of a dollar sign in front of a stock chart.

Fixed assets, which are sometimes called illiquid assets, are investments or other assets that cannot be liquidated quickly. For instance, your house, while likely worth a substantial amount of money, would be difficult to sell on short notice. As a result, when someone is looking to sell a fixed asset within a short period of time, they may be forced to accept less due to the lack of a large market.

Here are a few examples of fixed assets:

Your home and other real estate properties
Antiques
Jewelry
Furniture
Cars

One thing you’ll notice is that most of the assets above have somewhat consistent prices and stable markets. However, the ability to sell your gold necklace, your car or another fixed asset is often hindered because finding a buyer can be tough.

On the flip side, liquid assets are sellable nearly at a moment’s notice. For example, if you have money tied up in stocks and bonds, you can simply sell those investments and gain access to your cash within a fairly short time frame.

How to Build Your Liquid Assets

Building your liquid assets essentially means creating a financial buffer that can be accessed quickly if you face an unexpected expense or income disruption. This provides flexibility and reduces the need to rely on credit cards or sell long-term investments at unfavorable times.

Start by reviewing your current assets and ranking them by how easily they can be converted to cash. If you do not already have cash set aside for emergencies, building an emergency fund is typically the first priority. A common target is enough to cover three to six months of essential expenses, though the right amount varies based on income stability, household size and cost of living.

For example, if your monthly essential expenses total $3,000, a three- to six-month emergency fund would range from $9,000 to $18,000. You might begin by directing a portion of each paycheck into a high-yield savings or money market account until you reach that range.

Once a basic emergency fund is in place, you can continue building liquid assets through other accessible vehicles, such as additional savings accounts or conservative taxable investment accounts. Automated transfers, mobile banking tools and budgeting apps can make consistent contributions easier to manage.

Using budgeting and investment calculators can also help estimate how quickly savings may grow and how changes in contribution amounts affect progress toward your liquidity goals.

How Much Should You Keep in Liquid Assets?

Knowing which assets are liquid answers only part of the question. The larger issue is determining how much of your total wealth should be held in liquid form versus invested in longer-term assets. This balance affects your ability to handle emergencies, take advantage of opportunities, and avoid selling investments at inopportune times.

A common benchmark is maintaining liquid assets equal to three to six months of essential living expenses. These expenses typically include housing, utilities, food, insurance, transportation, and minimum debt payments. This range provides a cushion against short-term income disruptions or unexpected bills without requiring immediate liquidation of investments.

For example, if your essential monthly expenses are $4,000, a three- to six-month reserve would fall between $12,000 and $24,000. Someone with irregular income or higher fixed costs might aim toward the upper end of that range or beyond.

Individual circumstances can justify holding more than this baseline. Households with variable income, such as self-employed workers or commission-based earners, may benefit from larger cash reserves. Families with dependents or ongoing medical costs may also prioritize higher liquidity to manage unpredictable expenses.

Age and life stage matter as well. Younger workers with stable employment and fewer financial obligations may function comfortably with lower liquidity. Retirees or near-retirees often maintain higher liquid balances to reduce dependence on market-driven assets for day-to-day spending and to manage sequence-of-returns risk.

Bottom Line

Letters spelling out "emergency fund" above loose cash.

Making sure you have plenty in cash and other liquid assets is crucial – not just to cover everyday expenses, but also to allow you to handle an emergency or big life change. Understanding which of your assets are more liquid than others will save you time – as well as potential obstacles – in the long run. A financial advisor can help you determine the best strategy for your assets in order to meet your long-term goals.

Tips for Managing Your Finances

Everyone’s financial goals and needs are very different, which is why the right amount of assets to keep liquid is going to vary widely by individual. A financial advisor can help you figure out the right amount and place for your liquid assets. Don’t have an advisor yet? Well, finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Once you’ve got a strong emergency fund, work on investing for your future and retirement. Set up an employer-sponsored 401(k) and take advantage of your job’s company match if there is one. You should also be actively contributing to an IRA, as well as investing in some riskier securities if you’re younger.