Liquid net worth

Total net worth says whether you are getting richer; liquid net worth says how long you could last. It takes the assets that could be spent next week at close to their recorded value, subtracts the debts that savings would have to cover, and leaves out everything that can be reached only through a sale, a loan or a penalty. A household can have a large net worth and be a few months from trouble, and liquid net worth is the figure that shows it: $173,000 of total net worth with $20,000 liquid is five months of essential spending, not a fortune.

In a sentence

• "Our net worth is $173,000, but our liquid net worth is $20,000, which is about five months of essentials."
• "Moving $5,000 from savings into the 401(k) leaves net worth where it was and lowers liquid net worth by $5,000."
• "Home equity is in net worth. It is not in liquid net worth, because it can't pay a bill next week."

How it's calculated

Liquid net worth = liquid assets − unsecured debts

1. Add up the liquid assets: checking, savings, cash on hand, money market accounts, CDs, and taxable brokerage accounts at today's value.
2. Subtract the unsecured debts, the ones that would have to be paid from those assets: credit card balances, personal loans, medical bills. That is liquid net worth.
3. Leave the secured debts with their assets. The mortgage is paid from the house and the car loan from the car; both belong in the total, not in the liquid figure.
4. Divide by baseline monthly spending to read the figure as months, the number of months the household could last if income stopped.

An example

Total net worth is $173,000, most of it the home's equity and the retirement account. Liquid net worth is $20,000: the $25,000 of cash, savings and brokerage, minus the $5,000 of card and personal loan balances. At a baseline of $4,000 a month of essential spending, that is five months, and five months is the figure this household should know. Moving $5,000 from savings into the 401(k) would leave the total at $173,000 and cut the liquid figure to $15,000, under four months; so would an extra $5,000 mortgage payment.

Why it matters

Liquid net worth is the figure to check before a decision that consumes cash: a large purchase, a job change, or an extra mortgage payment that would come out of savings. Total net worth cannot answer those, because most of it is not available: home equity needs a sale or a loan, a retirement account costs taxes and a penalty, and a car is worth something only to a buyer, over weeks, below the guide price. The mistake the figure prevents is reading a rising total as safety. A household that puts everything into the house and the retirement account can watch its net worth climb every year while its liquid figure falls toward zero.

Liquid net worth versus total net worth

Net worth is everything you own minus everything you owe, and it says whether the household is getting richer; liquid net worth is the part that could become cash within days, and it says how long the household could last. Watch the total monthly for the trend, because it is the figure the mortgage payments and the retirement contributions move; watch the liquid figure before any decision that draws on cash, in months of spending rather than in dollars. See Liquid net worth versus total net worth, and which one to watch.

Common questions

Is liquid net worth the same as an emergency fund? No. The emergency fund is the part of liquid net worth set aside on purpose, sized at some months of essentials and kept in its own savings account. Liquid net worth is the wider figure: every cash and savings balance plus the taxable brokerage account, minus the card and personal loan balances.

Does a 401(k) count in liquid net worth? No. It can be reached, but the taxes and the early withdrawal penalty make it a last resort rather than a reserve, so it counts in full in total net worth and not at all in the liquid figure. The same goes for an IRA.

Should I subtract my mortgage from my liquid net worth? No. The mortgage is paid from the house, not from savings, and it stays with the house in the total. Subtracting it from the liquid figure makes nearly every homeowner's liquid net worth negative and tells you nothing. Subtract only the debts that savings would have to cover.

What is a good liquid net worth? Enough to cover the months of essential spending the household wants as a cushion, usually three to six, plus whatever is being saved for near-term goals. Divide the figure by baseline monthly spending and judge it in months; $20,000 against $4,000 a month is five months, whatever the total says.

Go deeper

• Liquid net worth versus total net worth, and which one to watch works a full balance sheet both ways and says when each figure is the one to read.
• How to calculate your net worth, with a worked example builds the total that the liquid figure is part of.
• The Emergency fund calculator sizes a fund from what a month of essentials costs, shows how far your savings already go, and how long it takes to finish at the amount you can add each month.

Where it shows up in Zypper

Zypper computes total net worth from every account and charts it over time, and the liquid figure is a matter of reading the right rows. Checking and savings accounts, including money market and CDs, credit cards, investment and brokerage accounts, including 401(k), IRA and Roth IRA, and loans, including mortgages and auto loans, connect and contribute their balances, updating every day, and the home and the car are manual accounts with balances you set. The accounts list shows each balance, which is where the liquid rows, checking, savings and the taxable brokerage account, are read against the card and personal loan balances. See Net worth tracking and Supported account types, or get started with Zypper to see both figures from one list.