How to Calculate Your Liquid Net Worth

I collected comic books when I was younger.

Well, collected is probably a misnomer. I read comic books as a child and I put them in plastic sleeves with non-acidic cardboard backers and then put them in a long box. That box now sits in my basement and brings back fond memories. I even taped a newspaper cut out of an interview with Jim Lee, an artist for Marvel and co-founder of Image Comics, on the box. I was pretty into comics. πŸ™‚

My mother would tell me that my comic books are only worth as much as someone would pay me for them. I would point to price guides and tell my mom she knew nothing! πŸ™‚

Nowadays, I know more… and like all moms everywhere, she was right. (Those comic books are priceless though)

That lesson is something I integrate into my finances today. As you may know, I keep a pretty detailed Net Worth Record document that tracks all of our accounts on a month to month basis. It, along with our money field manual, forms the basis of our core financial documents. It’s helpful to know all this so I can compare it with the average net worth as well as see how things have progressed over the years.

In my original post explaining how it works, I left one thing out.

In addition to adding up all the accounts to get our net worth, I also calculate a “True Liquid Net Worth.”

Table of Contents
  1. What is Liquid Net Worth?
  2. Why Is This Important?
  3. How We Calculated True Liquid Net Worth

What is Liquid Net Worth?

A True Liquid Net Worth is what our estate would be if we liquidated everything immediately.

Immediately is a somewhat relative term… you can’t “immediately” sell a house like you can sell a stock. In general terms, it means how much we’d get tried to quickly sell our house, both cars, and liquidated all investments – what would the total dollar amount be? Remember, it’s only worth what someone will pay us for it.

Knowing you have $100,000 in equity in your house might give you financial confidence but it’s not as much as $100,000 cash in the bank – that’s what Liquid Net Worth looks to capture.

In some circles, liquid net worth is just the amount you can get access to within 24 hours. However you define liquid net worth, it’s important to recognize that your net worth is not 100% liquid. The numbers I use below to calculate my liquid net worth may be different than yours and that’s OK.

It’s about understanding your finances, not being 100% accurate.

Why Is This Important?

I’m a fan of creating an emergency plan in addition to an emergency fund.

Much like you should have a plan if your house caught fire, you should have a plan for major emergencies. Wouldn’t it be important to know how much cash you have access to in a short period of time?

The great thing about calculating this is that if you keep track of your net worth, it’s just an extra equation in your spreadsheet.

How We Calculated True Liquid Net Worth

All of our accounts are combined into six buckets:

  1. Cash (and Cash Equivalents)
  2. Taxable Brokerage Investments
  3. Retirement Investments
  4. Direct Investments – angel investing, private placements
  5. Assets – Home
  6. Assets – Car

The purpose of buckets is to apply an appropriate discount.

I based the discount on taxes, penalties, and what I felt would be “reasonable” in a quick sale.

I tried to be as conservative as possible in calculating my discount:

  1. Cash (and Cash Equivalents) – No discount, it’s already cash. If a large portion of it were in CDs, I would discount it slightly for the early withdrawal penalty but it’s not right now.
  2. Taxable Brokerage Investments – I applied a 20% discount which is extremely conservative. We’ve held most of our investments for over a year so the actual taxes are going to be much lower than 20% plus the capital gains tax rates are on just the capital gains. Our discount is on the entire portfolio including the principal.
  3. Retirement Investments – I applied a 30% discount. I have a mix of tax-deferred and tax-free investments but the bulk are in tax-deferred so I figured I’d take my 20% from the taxable brokerage discount and add the 10% penalty for early withdrawal.
  4. Direct Investments – I applied a 50% discount because these are all illiquid. They’re a mix of notes and equity.
  5. Assets – Home – I applied a 25% discount and this is based on the difference between the purchase price of the home (setting it to the purchase price is not optimal but it’s easy – here are a few other ways to value your home) and our outstanding mortgage balance (equity). I don’t mark to market when it comes to the residence and I figure a 25% discount covers the fees and discount for a quick sale.
  6. Assets – Car – I applied a 20% discount based on the KBB Private Party sale price. We value the cars once a year, in January, and leave at that. Plus with depreciation and the relatively low value of those cars (one car is 10 years old, the other is over five), this is a minor percentage anyway.

Our True Liquid Net Worth is about 75% of our “full,” non-discounted, Net Worth.

It also gives me a strong sense of how much cash we could get our hands on in a reasonably short period of time. Cash and cash equivalents are accessible within a day. Investments would be liquid within a week. The rest take much longer, but now I have an idea of how many “levels” of cash I have and how long it’ll take to get it.

Your net worth isn’t cash in the bank and this calculate reflects that.

And it takes minutes to set up. πŸ™‚

Do you do a calculation like this?

If so, how do your discounts compare? If not, what do you do instead?

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About Jim Wang

Jim Wang is a thirty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

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  1. Norman says

    That’s a really interesting way of looking at things. Even though I haven’t done a calculation like this, I would probably use the same discount rates that you chose, since they all make sense and err on the side of conservative. Have you considered adding expensive jewelry and other valuables to your net worth? Perhaps you could just apply a higher discount rate to those items.

    • Jim says

      We actually don’t have much in the way of valuables or expensive jewelry, outside of an engagement ring, so it wouldn’t make much of a difference for our purposes. I suppose if you had a lot of those, it’d be important to include that … we just don’t.

    • Ned Prosser says

      Jewelry can be a worthless investment. It just doesn’t hold value unless it is gold or large diamonds. For instance, you could buy a gold & diamond engagement ring for $2000 and then try to sell it a few years later. You might get $500. You will not get anything near $2000 because the price you pay includes jeweler profit, that is not the actual value of the ring. Include a 90% discount and you might be accurate.

  2. Kalie @ Pretend to Be Poor says

    I’ve never calculated our net worth this way, but it’s an interesting idea since liquidity would be important in an emergency. I like the idea of looking at net worth from a variety of angles since what the number means practically matters as much as the numerical value.

    • Jim says

      Thinking about the number in different ways also forces you to plan better. If you needed cash right now, what’s the order you’d liquidate? Well, I wouldn’t jump to sell my car or house first because there are “cheaper” things to sell where I won’t lose a ton of “value” in a transaction. That’s not to say, in a pinch, you’d make the wrong decision between selling a stock investment and selling your car… but there are other ones where the difference is slight and a mistake could be made. Thinking about it now, while calm and everything is OK, is better.

  3. Todd says

    Jim, came across this and I appreciate the spreadsheet. I do have one question though, it appears you’re actually taking a 75% discount in the other assets (home and car) in the spreadsheet you have available. Would you recommend that being only a 25% to calculate true liquid net worth? It appears the header might be slightly mis-labeled as it’s called “Discount” but the formula actually shows it as more of a liquidity percentage versus a discount. Thanks for clarifying.

    • Jim Wang says

      I use 25% off because that’s what it feels like to me and you’re right, it should be a 25% off rather than a 75% “discount.”

  4. Curious$ says

    Should cash be discounted since the Central banks continue to print money to devalue our currency? We’re always advised not to save much in cash as our dollars will worth less tomorrow.

    • Jim Wang says

      Our cash isn’t actual cash (well, some small part is), it’s in a bank where it’s earning interest.

  5. JS says

    Hi,

    Actually, a car and house do not count as part of your liquid net worth as they are hard to liquidate immediately.

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