January 25, 2021

What is Liquid Net Worth?

What is Liquid Net Worth?

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Your total net worth is the total value of all your assets minus all your debt. Liquid net worth is how much money you can spend quickly from that total amount. 

Liquid net worth is the amount of your total net worth that can be quickly converted to cash when needed to spend. So assets that are difficult and take time to sell and have money deposited into your account like your home residence, rental house, property, or car, are illiquid parts of your net worth.  Liquid net worth is the amount of cash you could spend now or very quickly. 

Many people don’t understand that the wealthiest people in the world are not holding cash, they are holding assets. Whether real estate, businesses, stocks, precious metals, art, or collectables most wealthy people became that way through investments. The most wealthy people in the world like Warren Buffett, Bill Gates, and Jeff Bezos held 95% or more of their total net worth in the stock of the company they took public for decades. Their net worth is liquid up until they try to sell more stock than the market could absorb by buyers after that point they could drop their own net worth by driving down the stock price. 

The majority of the wealthiest people in the world don’t receive paychecks they own assets. Warren Buffett doesn’t receive a huge weekly paycheck from Berkshire-Hathaway he own billions worth of the stock and makes or loses money based on the trend of the stock price.

Your savings, checking, and cash balances are your most liquid net worth. Businesses, real estate, intellectual property, websites, and retirement accounts are not part of your liquid net worth as they would take time to convert to spending money.

What is Liquid Net Worth? The amount of money you can spend today if you want. 

What is Liquid Net Worth?

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