What is Liquid Net Worth? As you check your short- and long-term financial goals, it may be helpful to examine the cost of your belongings to that of your liabilities. That’s the place net worth comes in; this balance can eventually help you determine whether you must minimize monthly spending, set up a retirement savings account, or modify your tax withholdings.
The two major kinds of net worth are total net worth and liquid net worth. If you’re searching to develop your wealth then a monetary advisor is the nice expert to assist you to do just that by way of creating an economic plan and supporting you to make decisions about your investments
If you spend most or all of what you earn and find it hard to save, improving your liquid net worth can be an important first step to breaking out of financial insecurity. Let’s delve into the meaning of liquid net worth
What Does Liquid Net Worth Really Mean
Liquid net worth is a subsidiary of net worth, which is the standard calculation of what you really own minus what you owe. Financial experts explain it to be your liquid assets minus liabilities.
Liquid net worth uses this calculative identical method, however, bear in mind that it considers cash and different holdings that can shortly emerge or be exchanged as money — minus what you owe.
Simply put, Liquid net worth is the amount of money you’ve got in cash or cash equivalents after you have deducted your liabilities from your liquid assets.
Your complete net worth, however, is affected by using both liquid and non-liquid assets. This implies that you’ll have to add up the cost of all your assets, which includes vehicles, property, retirement accounts, securities, money, and whatever else of economic value. You’ll then subtract the cost of your liabilities from this sum.
If your liabilities exceed your assets, you’ll have a negative net worth. You’ll have a good net worth if your assets have an extra financial value than your liabilities.
For your easy understanding, Liabilities are financial debts you incur along the line which of course one must pay. These might include loans of different kinds, like student loans or car loans), credit card balances, taxes or mortgages, etc.
What Does Liquid Assets Imply?
Liquid assets are your properties that are in physical cash or can be converted into cash within a very short period of time. For example, if you have cash in your financial savings or a money market account, you can withdraw it at any time without any option of a penalty on you or the program losing its value.
Examples of liquid assets include cash, money market accounts, checking accounts, and savings accounts. Though there is some debate about this, some people also regard liquid accounts receivable, stocks, mutual funds, bonds, and any other securities that can be quickly turned into cash.
How to Calculate Your Liquid Net Worth
You can determine your liquid net worth by taking the total sum of your liabilities and subtracting that from the total sum of your liquid assets.
Let’s look at this as an example ;
For instance, let’s say you’ve got $30,000 in cash, $150,000 in your savings accounts, and $100,000 in a 401(k) account. If these are your only liquid assets, the total sum of your liquid assets is $280,000.
If you only owe $4,000 in credit card debt, $20,000 in car loans and $22,000 in student loans, the total sum of your liabilities is $46,000. Subtract that from $280,000, and your liquid net worth is $234,000.
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How to Increase Your Liquid Net Worth
Undoubtedly, liquid net worth is a big-picture view of your financial health. This is where you can know if you’re financially handicapped or not. It shows you if you can make future investments without going short of cash.
Therefore, there is a need to improve your liquid net worth and have a strong financial foundation. Here’s how;
1. Do not be Extravagant
You should not spend money on unnecessary things that do not add value to you. This means you have to trim your expenses. It is at this stage that you need to identify your “wants” and “needs” and act accordingly.
2. Stop Incurring Debt
You will stop incurring debts when you start paying off your debts, of course, this is a vital way of staying afloat in your financial journey.
As you pay off debts, you will be freeing up money to be used rather than tying it down and don’t even get to pay the debt at the end. Debt is bad for you if you want your liquid net worth to increase and for you to have a steady cash flow.
3. Start Saving
If you didn’t do this, or you did it but stopped at some point please revive it. Nobody has ever saved money and regretted doing so. When you save your money you can plan your financial future hitch-free because you know your money is waiting for your call.
In case of an emergency, you can easily get to where you saved it and retrieve it easily. There you have financial security.
4. Make Investments
This is possible when you save, to give you ample time to plan for long-term investments that will help you in the future. You can continue saving through your retirement account, in case anything happens to you, and your beneficiary/beneficiaries can benefit from your long time investment.
5. Make Budgets
Making budgets and having strategic means of spending your money through budgets will greatly improve your net worth.
Even if your net worth or liquid net worth is a meager amount the goal should be to slowly improve your financial capability. Move the figures to a bigger value by following the steps listed above.
By paying attention to the basic tools of building wealth and getting financial freedom, you will surely be smiling at your liquid net worth.
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