Difference Between Liquid Assets & Net Worth

Liquid Assets

Cash and cash equivalents, such as a bank savings or checking account, are liquid assets. Such assets are called "liquid" because you can convert them into actual cash without incurring any significant costs. For example, if you have cash in your bank account you can typically take that cash back out without paying a fee of any kind. Other types of assets, such as your home, cannot be converted to cash immediately, at least not at fair value.

Net worth is the total net value of all of your possessions. Rather than simply adding up the value of everything you own, however, net worth has a liability side of the equation. Essentially, net worth is what you would be left with if you had to sell all your assets and pay all your debts. It is entirely possible to have a negative net worth. As a simple example, if your only real asset is your home, and you owe more on your mortgage than the home is worth, you probably have an overall negative net worth.

Calculating the amount of your liquid assets is fairly simple. List the value of all your bank accounts, certificates of deposit, Treasury bills and any marketable security, such as stocks or mutual funds, that can be sold at any time. Add up all of these values and you get your liquid assets. For net worth, you need the sum of your liquid assets plus your liquid assets like your home furnishings and automobiles. From that figure, subtract your liabilities, including any home mortgage, credit card debt, student loans, 401(k) loans or any other debts. The resulting figure is your overall net worth.

Your liquid assets and net worth can literally change from minute to minute. If you own stocks, every time your stocks are traded your net worth can rise and fall. Every time you receive a paycheck, your liquid assets rise at least temporarily, as does your net worth. However, as your monthly bills arrive, they increase your liabilities, temporarily reducing your net worth. Any time you calculate your liquid assets or net worth you are capturing just one moment in time.