What Is Liquid Net Worth And Why It Matters To Your Finances
Net worth according to Financial institutions is your whole asset minus your Liabilities. If you have ever been faced with financial challenges that warrant you converting most of your assets and liabilities to Cash or want to avoid falling or being unprepared when it comes, then here is an untying of a financial secret known as Liquid Net Worth and it’s going to change your financial solution.
What Is Liquid Net Worth
Liquid Net Worth is the return at the end of a period of time and your asset excluding your Liabilities that can be converted to cash and still retain the original value.
The formula for calculating liquid net Net Worth is;
Liquid Net Worth= Liquid Asset – Liquid Liabilities.
“liquid net worth is the asset minus your liquid liabilities that can be converted to cash and used without the value changing” – Smartasst.
The word Liquid refers to the ability of that asset or Liabilities to be easily converted to cash while maintaining their original value.
Similarities Between Net Worth and Liquid Net Worth
Liquid Net Worth is similar to Net worth in the sense that they are both returns at the end of a given period of time after removing your Liabilities.
They both have and make use of some financial terms like:
Assets are basically anything you own like cash, stock which you use to earn money or generate income.
Relating it to Liquid Net Worth, Liquid Assets are cash or stock that can be changed directly to money will maintaining their original value.
These are things you own that tend to consume your money. Things like credit cards, cars, and houses are a perfect category of Liabilities.
In the case of Liquid Net Worth, Liquid Liabilities are personal properties that either tie down your money or cause more spending and when changed to cash, they still maintain their original value.
Difference Between Net Worth And Liquid Net Worth
The difference found in both is the Liquid attached to Liquid Net Worth.
In the case of Liquid Net Worth, both the return, the asset and liabilities have a great tendency of being sold and converted to cash at any point in time and they will still maintain the original value.
But for Net Worth, both return, asset and liabilities after being sold or converted to cash will not maintain the original value.
You may own a pastry maker(Asset) and a share you bought from one organization (liquid Asset)
When both are sold, you will observe that the Pastry maker tends to be sold less than the original Amount it was bought for.
While the share can be sold higher than the amount it was bought for.
Examples of Liquid Net Worth you should have
There are numerous types of asset anybody can have ranging from a commercial car to your handkerchief, but they are Asset that when acquired help in achieving Financial Freedom through the help of Liquid Net Worth.
These assets are;
Money is the only asset that doesn’t depreciate with time. It remains in it’s original value so long till the day of use.
Owning some amount of money will enable you skip over financial issues when they arise.
2. Bond and shares:
These type of asset remain in that value for a long time and at the same time produce dividend.
Shares and bond are the best type of assets because they are a great source of Liquid Net Worth.
Benefit of Liquid Net Worth
Everyday brings new hope and challenges. No day you don’t get to spend a penny on electric bills or food or airtime.
But there are days we get to spend more. Days when we are faced with Financial Problem that often times warrant us to sell off most of our assets to meet financial Freedom.
Having the knowledge of Liquid Net Worth, will enable you prepare for such days. It will enable you acquire asset that can be converted to cash when need be and still retain their original value.
How To Increase Your Liquid Net Worth
There are many ways of achieving increased liquid net worth and grow your wealth, but the easiest and efficient means are;
1. Buy extra shares and bonds
Buying more shares and bond is a great of achieving Liquid Net Worth.
You’re shares and bond produce dividend and they turn out to be Liquid Asset when need be.
2. Limit the number of Liabilities you have
Buying of cars, owing enough houses are good, of course they are but they don’t always help during Financial Problem because when converted to cash their value tend to fall less than the original value.
Limit owning Liabilities that do not add much value to you especially during the time of Financial Problem.
3. Make more investment:
Invest in assets that will yield profit.
Buying of cars for commercial purpose adds more value to your Liquid Net Worth than personal cars will.
4. Make more income
Having a large well of money is a big advantage to you. It’s a good source of increasing your Liquid Net Worth.
You don’t have to worry about every problem because you have already prepared for it.
You can increase your income by;
- Limiting your daily expenses
- Getting other side jobs. These jobs could be online job or physical jobs
5. Develop a good Maintaining Habit:
Managing your asset as well as your Liabilities very well will amount to be a good source of liquid Net Worth.
At times the good shape of your Liabilities can even propel it to be sold higher than it was acquired.
Finally, Liquid Net Worth is a good way of determining your financial freedom because it prepares you for any coming financial challenge.
Being able to acquire and maintain more of assets that when converted to cash will still retain their original value Is the best form of Assets and a great way of Achieving Liquid Net Worth.