Liquid net worth is the total money you have in cash or cash equivalents after you’ve deducted your liabilities from your liquid assets. It is similar to total net worth, but it excludes non-liquid assets like real estate and retirement accounts. All of your assets minus all of your debts represent your total net worth. It worth shows how much money you have available to spend quickly.
Liquid Net Worth V/s illiquid Assets
You have liquid net worth if you can easily convert it to cash when you need to spend it. Assets such as home residence, rental house, property, or car, which are difficult to sell or have deposited into your account are illiquid assets. You have this type of net worth when you have cash available now or very quickly.
Rich People’s Views on Liquid Net Worth
Most people do not realize that the world’s wealthiest people do not hold cash; they own assets instead. Rich people have often accumulated their wealth through investments, including real estate, business investments, stocks, gold, art, and collectibles.
Examples of rich people
Buffett, Gates, and Bezos all held nearly 95% of their worth in the stock of the company they promoted to public ownership. While their net-Income remains liquid as long as their stock prices don’t plunge, the moment their stock prices plummet, all of their money could disappear.
If they own assets, most of the world’s wealthiest people don’t receive paychecks. Rather than receiving a large paycheck every week, Warren Buffett owns millions of shares of Berkshire Hathaway and makes or loses money based on its stock price.
Conclusion
You are most liquid when you have cash, savings, and checking balances. This type of net worth does not include businesses, real estate, intellectual property, websites, or retirement accounts due to the lengthy process of converting these assets into spending money.
Importance of LNW.