The Value of Liquid Net Worth

You probably do not often come across the variation of the term called “Liquid Net Worth,” which is actually a stronger indication of where your current financial health is at. 

Your net worth is the sum of your total assets minus your current liabilities. And your liquid net worth is the number of assets you have that could be quickly sold and turned into cash at a moment’s notice.

What is Net Worth And Liquid Net Worth?

Why Liquid Net Worth is Important

After reading the definition, you might be wondering why knowing your liquid net worth is important. Afterall, it might seem like another vanity financial metric that might be good to know, but isn’t necessary. Well, there are a few reasons why having the full-picture of your liquid net worth matters. 

1. You want to know how much you have in case of an emergency

By knowing your liquid net worth, you’ll know how much cash you can access if something unexpected happens and you need a lot of money. Not all assets can be sold quickly, so you want to know which ones you can access if needed.

2. To know your financial security

You’ll know you can cover any emergencies and you’ll feel confident about any purchases or decisions you’re making.

3. To encourage you to create an emergency fund

You should have a few months of expenses saved up for emergencies already — but if you don’t, knowing your liquid net worth will help you start saving towards that fund. 

4. To keep track of your path to financial freedom

Most people base their progress to achieving financial independence on their total net worth. However, knowing your liquid net worth will help you determine how much you can cover for immediate expenses. 

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