A liquid asset is either the cash in your wallet or something you own that can quickly and easily convert to cash without losing significant value in the process. Checking accounts, stocks and bonds are great examples of liquid assets because they have clear monetary value and don’t take long to cash in.
When you hear the words “net worth,” you probably make a mental list of all of your assets and calculate the total value. Sure, you can have a total net worth of $1 million, but how much of that money can you access right now? Funds you can access quickly are considered your liquid assets.
First, let’s define liquidity: assets you can turn into cash quickly and easily without losing value in the transaction. Certain deposit accounts and stocks are among the most liquid of assets because their value is clear and you can quickly convert them to cash. On the other hand, real estate isn’t as liquid because it requires more work to determine its value, takes much longer to sell and you may not reap its full value.
Liquid assets examples include cash (the most liquid asset because it doesn’t need to be converted), bank accounts and some investments. Below are descriptions of common liquid assets:
Illiquid assets, also known as fixed or non-liquid assets, are much harder to turn into cash. They take time and effort to trade or sell and may not even offer the same short-term value.
It’s smart to have both liquid and non-liquid assets to your name — to cover your short-term and long-term financial needs. The following assets are illiquid because they take a long time to determine value (which may diminish in the transaction), then sell and generate cash, but they can have their own benefits and value long-term:
For individuals, liquid or tangible cash is important for personal bills, lifestyle or basic needs and costly, unexpected emergencies. For businesses, it’s crucial to have easily tapped assets to cover unexpected costs on the balance sheet and to cover short-term obligations, like payroll or bills to vendors, for example.
With some immediate cash on hand, you won’t have to borrow money or use a credit card to cover expenses. It works the other way, too: having a grasp of your liquid assets can help you know your true net worth, which can help you apply for a mortgage or other loans later on if you need it.
Keep in mind that liquidity varies among different assets and within each asset class. For example, checking accounts may be considered more liquid than CDs because the former allows unlimited, free withdrawals. There are always going to be nuances, but the scale below shows liquidity from a broader perspective.
|Least liquid||Somewhat liquid||Liquid||Most liquid|
|Home and real estate||Gold and silver||Retirement accounts||Money market accounts|
|Collectibles||Mutual funds||Money market funds|
|Artwork||Stocks||Cash management accounts|
To calculate your liquid net worth, add up your total liabilities (i.e., loans or credit card debt) and subtract them from the sum of your liquid assets (i.e., cash and cash equivalents).
For example, let’s say you have $10,000 in your checking account, $50,000 in savings and $15,000 in investments. The total of your liquid assets would be $75,000. If you owe $20,000 in student loan debt and $5,000 in credit card debt and have $10,000 left on your car loan, your liabilities come out to $35,000. When you subtract your liabilities from your liquid assets, your liquid net worth comes out to $40,000.
If you calculated your net worth above and realized you don’t have enough to cover yourself in case of an emergency, start with building an emergency fund as your primary liquid asset. Most financial advisors recommend putting away three to six months’ worth of expenses in an emergency fund as a liquid safety net.
If you’re interested in investing as a way to build your assets, you might try an investment app or work with a robo-advisor to simplify the process. Already have money invested? Here’s our investment calculator to help you visualize that growth over however many years you choose.
Otherwise, your best approach to improving liquidity is budgeting (consider a budgeting app like Mint or EveryDollar) and keeping an eye on your credit report. In case you do end up having to borrow money, you want to increase your chances of being approved for a loan and getting a decent interest rate.
Cash is the most liquid asset and comes in the form of tangible dollar bills, coins and checks that have not yet been deposited. Checking accounts are considered nearly as good as cash.
Yes, although a savings account is considered less liquid than a checking account because banks limit the number of withdrawals you can make from your savings account each month, and they typically do not come with check-writing privileges or debit/ATM cards.
No. Automobiles are not considered liquid assets, as they may take longer to sell, convert to cash and transfer ownership. Plus, they may lose value in the sale.
A liquid asset is cash or something you own that can quickly and easily be turned into cash. Illiquid assets take longer to sell, may sell for less than what you paid for and take longer to convert to cash.
No, a house and other real estate are not considered liquid assets. It can take months to negotiate, inspect and go through the transition of ownership, and then even longer before you actually receive the money from the sale.