Overall Net Worth VS Liquid Net Worth: What’s The Difference

Many of us, might think that net worth is just for the wealthy or something too complicated to understand. But it’s not! For every woman, no matter the financial situation, understanding net worth and, more importantly, liquid net worth is very crucial. Knowing these can help us make better financial decisions and be more prepared for life’s surprises and unexpected situations. Let’s break it down together in simple terms for understanding net worth, see why this matters to us, and understand net worth vs liquid net worth.

What is Overall Net Worth?

Overall net worth is like a financial snapshot of life. It includes everything you own (assets) and minus everything you owe (liabilities). Here’s how it works:

1. Assets: These are things that you own. It could be your home, properties, car, jewellery, savings, investments, and even that antique table your grandmother gifted you. If it’s something you can sell or has value, it’s an asset.
2. Liabilities: This is what you owe. It includes your loans/debts, mortgage, credit card debts, or any other financial obligations.

To calculate your overall net worth, simply use the below formula,

Overall Net Worth = Total Assets – Total Liabilities

If the number is positive, you own more than you owe – yay! If it’s negative, then don’t worry as this is just a starting point to understand where you stand financially.

What is Liquid Net Worth?

Now, let’s understand the liquid net worth. Think of this as the money you can access quickly or liquidate in case of an emergency or in an immediate need. Liquid net worth is calculated by taking all the liquid assets you have and subtracting your liabilities.

1. Liquid Assets: These can be quickly turned into cash without losing much value. Examples include your savings account, cash, and investments done in a liquid mutual fund or short-term debt mutual fund, RD, or your emergency fund (that can be used during emergencies) which can be easily redeemed or liquidated. It doesn’t include your home or car because you can’t sell these quickly without a lot of hassle, right?
2. Why Liquid Net Worth Matters: Imagine you need money urgently, say for a medical emergency or unexpected expense. Your house might be worth a lot, but you can’t sell it fast enough to cover your needs as a house is an illiquid asset. This is where liquid net worth comes in. It shows you how much money you can actually use right away.

That’s why having an emergency fund is essential. It ensures you have liquid assets available to cover any unexpected situations that might come up in life. So, build your liquid assets

You can start creating your emergency fund with Lxme’s Emergency Fund which offers tax-efficient returns. This fund is well-researched and curated by experts.

Why Should Women Care About These Concepts?

Understanding these two types of net worth is important for all women, whether you’re single, married, a mother, or a businesswoman. Here’s why:

• Financial Independence: Knowing your overall and liquid net worth helps you see where you stand financially. It’s the first step towards being financially independent and making financial decisions that are best for you and your family.
• Being Prepared for Emergency: Life is full of surprises, some pleasant and others not so much. By keeping an eye on your liquid net worth, you ensure that you have enough accessible & liquid funds to handle any emergency without any financial stress.
• Goal Setting: When you know your net worth, you can set realistic financial goals, like, buying a new car, saving for a trip, or investing for your child’s education or for your retirement. It helps you understand what you can achieve and how to plan for it.

So, next time you’re having a chat over coffee with a friend, bring up the topic of net worth & discuss the same. It might sound boring or complicated, but overall net worth vs liquid net worth, both are equally important and understanding these can help you to make smarter financial choices and decisions. Remember, every woman deserves to be financially confident and prepared for whatever life throws her way. Start by knowing where you stand, and take charge of your financial future today.

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