What Is My Liquid Net Worth? (How To Calculate)

What Is My Liquid Net Worth? (How To Calculate)

August 17, 2022

Even if you’ve never considered it before, “What is my liquid net worth?” is a question worth asking. Understanding your current financial situation is essential to determine how you’ll reach your future objectives—for example, whether you’ll have enough money to fund your ideal retirement.

In this article, we’ll answer the question, “What does liquid net worth mean?” We’ll also explain which assets count as liquid net worth and which don’t, as well as how to calculate liquid net worth.

Are you ready to discuss your liquid net worth with an advisor to create a plan for your financial future? Schedule a call with Bay Point Wealth today.

What is my liquid net worth?

Your liquid net worth is the total sum of your assets that are either already readily accessible cash or assets that you could immediately turn into cash—minus your liabilities.

Beyond this definition, another way of looking at liquid net worth is as a measure that allows you to evaluate your immediate financial security. The word “immediate” is important here: think of your liquid assets as assets that could help you handle a surprise expense that you need to pay quickly. They constitute an element of timely protection not present in other types of assets. Although metrics like your total net worth may give you some idea of your overall financial security, your liquid net worth consists of only the money you can access at a moment’s notice.

To know how to figure out liquid net worth for yourself or your family, you first need to understand which assets to classify as “liquid” in your calculation. Let’s break this down.

What Liquid Net Worth Does Include

Cash and assets you could quickly turn into cash contribute to your liquid net worth. These assets could include:

  • Non-retirement savings accounts
  • Money market accounts (high-interest bank accounts)
  • Certificates of deposit (an even higher-interest savings product from your bank)
  • Investments, such as stocks and bonds

There’s one caveat to counting stocks and bonds toward your liquid net worth: if it’s an inopportune time to sell then you’ll likely lose money.

For example, the market crash at the beginning of the COVID-19 pandemic in March 2020 was a bad time to sell stocks and bonds because their value had sharply decreased (luckily, only in the short term). If you needed to liquidate those assets at that time (sell them for cash), you probably would have had to sell at a loss.

It’s also important to note that in certain instances, you may be required to pay capital gains on securities when you sell them. You must account for this when calculating your true liquid net worth. If you are currently in a certain income bracket, depending on your tax filing status, and you are selling appreciated stocks from a regular brokerage account, you will owe between 15 and 20% tax on the amount of the portion of the gain.

What Liquid Net Worth Doesn’t Include

You shouldn’t typically count assets that would take you more than a few weeks to liquidate toward your liquid net worth. In addition, don’t count assets on which you’d lose money significant value if you liquidated them, due to early withdrawal fees or depreciating value. These assets could include:

  • Investments, such as real estate investment trust holdings
  • Annuities (insurance products)
  • Vehicles
  • Household items and personal possessions, such as furniture, art, and jewelry

However, if you do choose to count these assets toward your liquid net worth, ensure that you discount their value by approximately 30% (or the percentage applicable to your income tax bracket, including income from the withdrawal), as we’ve done for the IRA account in the chart below.

Market Liquidity vs. Financial Liquidity

In addition to your overall liquid net worth, you should know the difference between two subcategories of liquid assets. These definitions will help you further analyze your assets and overall financial strategy.

  • Marketability/Market liquidity: Though this type of liquidity includes potentially large assets like stocks, bonds, and even your home, their value is ultimately dependent on the whims of the market and/or on tax liability. This means that you can get cash from selling these assets, but the cash amount might not be what you expected: you’ll receive only what the assets are worth at the moment you sell them.

    In addition, you may have to pay capital gains taxes depending on the number, growth, or total yield of stocks or bonds you sell. And as discussed below, with gray-area liquid assets like pre- and post-tax retirement accounts, your distributions can incur either taxes or early withdrawal penalties if you treat such accounts as liquid assets and draw from them earlier than the applicable rules allow.

  • Financial liquidity: This type of liquidity is cash in its truest form. If an asset is financially liquid, it can either be converted to cash instantly, or you can easily access it at a moment’s notice without it losing any significant value. Savings accounts, checking accounts, money market accounts, and certificates of deposit would all be considered financially liquid.

The Gray Area

Have you ever wondered, “Does liquid net worth include retirement accounts?” The answer isn’t a straight yes or no. You can sometimes consider the following assets as part of your liquid net worth:

Note: An earlier version of this article categorized pre-tax retirement accounts as illiquid and post-tax retirement accounts as gray-area liquid assets. However, this categorization has been adjusted to consider retirees and investors in different stages of life.

Although you can withdraw your contributions tax-free from a Roth IRA, you may incur taxes and/or a 10% penalty on your earnings in the account, which is why it’s important to have a financial plan in place to determine the best time for you to access these funds. Learn the rules related to Roth IRA withdrawals.

In addition, you can likely consider your home an illiquid asset unless you plan to sell it within the next year. When you are ready to sell, remember to account for closing costs so you don’t overestimate how much money you’ll earn from the sale.

Separating Liquid From Illiquid

It’s important to think about the different ways in which the retirement assets above provide you with liquidity, especially depending on your stage in life. Consider the following examples to determine which of your assets provide financial liquidity, which provide market liquidity, and which could switch between liquid and illiquid in the future.

  1. If you are in your 40s and decide to make a tax-free withdrawal from an existing post-tax retirement account to cover an unexpected expense, you’ll still have to pay an early withdrawal penalty. You may be able to avoid the early withdrawal penalty if you meet certain criteria—talk to your financial advisor if you want to explore these options—but this type of account should still be considered nearly illiquid at this stage. At the very most, it’s part of your market liquidity but should be used sparingly. You’ll have to consider its market value and subtract penalties in order to calculate your true withdrawal value.
  2. If you’re 55 years old and have just retired, you’re newly entitled to withdraw from your employer-sponsored 401k without any penalties. This means that your pre-tax retirement accounts are liquid at this point in your life, although you will have to pay taxes on withdrawals, just as you would on any other taxable income.
  3. If you’re 59 ½ years old, retired, and possess a post-tax retirement account that’s at least five years old, you can withdraw from that account without any penalties and without paying any taxes. At this point, a post-tax retirement asset is almost financially liquid. Why “almost”? Because you should check to make sure you’re not selling your invested contributions at a loss. Once you’ve confirmed that you’re not “taking a haircut” on any trades or sales, you can treat this type of asset as you would a savings account or money market account: You’ll have access to penalty-free, tax-free money as soon as you need it.

These examples are important because even gray-area assets like a home can become liquid (if, for example, you have a reliable appraisal of your home’s value and plan to sell it soon in a seller’s market or desirable location). However, you always want to plan based on which category—liquid, illiquid, or partially liquid—an asset currently falls under. Assets can switch to different categories in an instant, often as you age, but it’s not financially healthy to assume that an illiquid asset is liquid.

Why It’s Important To Understand Liquid Net Worth

You now have a clear sense of what liquid net worth does and doesn’t include. This is helpful knowledge because it’s crucial to understand your cash needs—as well as how much cash is available to you at any given moment—so you can be prepared for unexpected costs as they inevitably arise.

For example, you may own a home that is likely to need a new roof in the next year or so or another major expenditure. If you calculate your liquid net worth and realize that you won’t have enough cash available to cover the renovation within that timeline, this should signal that it’s time to rework your financial plan.

You may need to sell some assets to free up cash for your new roof or to draw on in retirement. When you consider selling any asset, be aware of the potential implications, including fees and taxes—depending on the accounts from which you withdraw the money and when you withdraw it—which could impact your plan of action and your financial future. For example, you may not be able to take that family vacation you had on the books for next year.

Pro Tip: If you’re looking for guidance around the fees and taxes associated with your various accounts, a financial advisor can walk you through this information. They’ll help you decide on the appropriate next steps, and then work with you to adjust your financial plan as necessary to ensure you can still reach your goals.

Emergency Funds

It’s also important to know your cash-on-hand needs so that you can put together an emergency fund. Emergency preparedness is an essential part of your long-term financial plan, as it helps you pay for unexpected expenses with readily available cash.

The practice of maintaining an emergency fund isn’t as ubiquitous as it should be: CNBC reports that this year, 56% of Americans wouldn’t be able to cover an emergency expense of $1,000 with their savings. For that 56%, this could indicate either a lack of funds or inaccessibility of existing funds tied up in illiquid assets. Either way, if you can’t access your money in a time of need, you haven’t allocated enough of it to liquid assets. This could put you at risk of going into debt or borrowing against your illiquid or less-liquid assets (like your car or home).

To build an emergency fund, first, regularly conduct the exercise of monitoring your financial situation. Then talk to a trusted expert, like your financial advisor, and identify your financial weak spots and illiquid assets. The level of liquidity you need is unique to your situation, but to start, you’ll need to think about your cash flow, income vs. expenses, assets, and any large expenses on the horizon.

Last, put together 3-6 months of living expenses and set it aside so it’s always financially liquid—typically, in a savings or money market account.

If you don’t want to deal in formulas, there’s another type of approach you can apply to definitively construct your emergency fund: Put together the amount of cash that lets you sleep well at night.

How To Calculate Your Liquid Net Worth

If you still find yourself wondering, “But what is my liquid net worth?”, grab a pen and paper—it’s time to put your newfound knowledge into practice and calculate your personal or family liquid net worth.

How To Calculate Liquid Net Worth

  • Step 1: Make a list of your liquid and non-liquid assets and their value. Refer to the examples provided earlier in this article to help you. Everyone’s list will look slightly different.
  • Step 2: Discount certain assets to account for the costs associated with liquidating them. For example, subtract at least 25% from the value of your home to account for realtor and legal fees associated with the sale, as well as moving and repair costs.

Pro Tip: It’s always better to assume that your home has less cash value than you would otherwise think. This way, you may be pleasantly surprised instead of disappointed when the sale is complete.

  • Step 3: Make a list of all your liabilities (debts). These could include your mortgage, car loan, student debt, credit card debt, and even a loan from a family member to help you start a business.
  • Step 4: Subtract your non-liquid assets and your liabilities from the total sum, and you’re left with your liquid net worth.

Here’s an example of what this calculation could look like:


% Discount






Non-Retirement Savings Account








Roth IRA

















Auto Loan



Student Debt



Credit Card





Net Worth



Liquid Net Worth (without home and car)



What does my liquid net worth mean for monitoring?

Although it’s important to do these calculations and have a complete picture of your liquid, illiquid, and partially liquid assets, you don’t need to monitor your balance sheet in this level of detail very often. Think about it once or twice a year, or when a major expense is coming up. Like other big numbers (such as your total net worth), calculations like this are measurements of long-term progress.

On the other hand, a liquid emergency fund is a measure of near-term safety. Calculate your emergency cash-on-hand number and check it more frequently—and if you don’t yet have an emergency fund, think about examining your financial situation in the near future.

You should also consider your ratio of illiquid to liquid assets as you retire. If you have 90% of your net worth in illiquid assets, such as business interests and real estate, you need to make sure the remaining 10% can sustain the expenses stemming from your day-to-day consumption. If you retire on this ratio, decide when to begin converting illiquid assets into liquid assets. You don’t want to use up all your liquid assets—including retirement accounts—and then be left with wholly illiquid items that may take weeks or months to sell.

Overall, it’s important for you to monitor your progress and near-term safety. If you’re so inclined, have your financial advisor join you in this and help you create a safety plan.

Create Your Financial Plan With Bay Point Wealth

Once you’ve calculated your personal or family liquid net worth, a smart next step is to work with a financial advisor to create or adjust your financial plan.

Whether your goals include starting a business or preparing for retirement, our team at Bay Point Wealth can guide you to ensure you approach these objectives the right way. We’re here to understand your needs and to help you save as much money as possible on fees and taxes associated with making withdrawals from your accounts.

Schedule a call with us´╗┐ to learn more about how we can work together to enable you to achieve your financial goals.