Do You Know How Big a Financial Catastrophe You Could Survive?

Liquid Net Worth — Easy Definition, Why You Should Care, and a Quick Calculation

The venerable “net worth” is interesting, but its liquid variant answers far more critical questions…

Photo by Dmitry Demidko on Unsplash

I came to this country owing more than I owned.

In personal finance terms, I had a negative net worth. Negative $4000 to be precise.

But in reality, my finances were even more fragile than that sad number. That’s because part of my nominal net worth was tied up in a used car for which I’d paid $8000.

If an emergency came up and I needed money, I’d be hard-pressed to sell my car immediately, and even if I managed it, I’d probably have had to lower its price significantly.

How do you capture that fragility, or in a better situation, the relative stability?

Enter “liquid net worth.”

Defining Liquid Net Worth

Before we can define liquid net worth, we need to understand the more generic plain-vanilla “net worth.”

Easy enough.