If you’ve ever wondered how to track your liquid net worth or even what it is, this guide will help you not only arrive at that figure but also give you tips on how to increase it.
Personally, I use a free tool called Personal Capital to help monitor my net worth and liquid, but you can use a spreadsheet or even a pen and paper to track and increase your liquid net worth.
What is Net Worth?
Simply put, your net worth is the value of your assets minus your debt. For example, if you own a home worth $225,000 but have a remaining mortgage balance of $200,000, your net worth would be $25,000 (assuming this is your only asset and debt.)
What is Liquid Net Worth?
You liquid net worth represents the value of assets you have that are readily converted into cash, minus your debt. Liquid assets are things like a checking or savings account. This is money can be used for transactions without any cashing-in or conversions.
Then, there are “cash equivalents” like treasury bonds or precious metals like gold or silver. These are not used like cash but can be easily converted into cash as needed. If you prefer gold investing, there are a multitude of sites which can teach you how you can invest in it in the best of ways.
How do I calculate my liquid net worth?
- Add up all of the liquid assets you own like cash you have in your checking or savings account plus any cash in your possession
- Add up all of your debt (mortgages, car notes, credit cards, student loans, etc.)
- Subtract your debt from your cash balance
- The resulting number is your liquid net worth
Let’s say you have $8,000 in savings and checkings plus a car worth about $15,000 with $3,000 on the loan balance.
Your liquid net worth would be $8,000-$3,000 or $5,000. Why? Well, because your car is not a “liquid” asset and the debt you have is subtracted from your liquid assets, i.e. your cash in the bank which gives you a liquid net worth of $5,000.
Related resource: Video tutorial on tracking net worth with Personal Capital
Why is net worth important?
A large part of financial health is “knowing your numbers,” net worth being one of them.
It’s like being aware of your cholesterol levels, weight, body fat percentage and so forth. The health care industry is pretty diligent about letting people know the normal levels for these health markers.
Most people generally know how much they should weigh, what their blood pressure and cholesterol levels should be, etc. But not many people know where they should be in terms of net worth.
Your net worth tells you if you are on track to meet your financial goals. Think about things you’d like to do in life: retire at age _____, have $___ saved for the kid’s college, own ____ rental properties and the list can go on.
Depending on what you want to accomplish, your net worth will give you an idea of if you are on the right track to get these things done.
How to calculate your overall net worth
Calculating your overall net worth is surprisingly easy, as well. Simply add up everything you own (cash in banks accounts, brokerages, 401ks, bonds, real-estate, etc.) and subtract the amount of debt you owe on everything.
The resulting number is your net worth.
Let’s take this example:
Car 1 $14,000 (what it’s worth)
Car 2 $22,000 (what it’s worth)
House $350,000 (what it’s worth)
Total Assets: $546,000
Student Loans $45,000
Mortgage balance $325,000
Car note 1 balance $12,000
Car note 2 balance $20,000
Credit Card 1 $15,000
Credit Card 2 $8,000
Total Debt: $444,000
Net Worth $102,000
Can you see how powerful this exercise is? Imagine living in a large, beautiful house in the suburbs with two nice vehicles and decent-sized bank accounts.
Now, what if this person was 2 years shy of their planned retirement? Having a such a small sum of money in a retirement account with a substantial amount of debt isn’t the best position to be in.
Even if this person wasn’t about to retire, having so much debt could really jeopardize their ability to save for retirement, a dream vacation, business venture or anything else.
It’s best to tend to this number right away and get a plan to increase is ASAP.
How to increase your net worth
- Get a side hustle to earn more money
- Start investing in stocks
- Invest in real estate
- Create a budget to save more money
If you are interested in living comfortably and having a life where you are not struggling with money, it’s a good idea to intentionally increase your net worth.
It sounds almost too nonchalant to talk about changing your money picture with a concept as simple as “determination,” but as the old adage says, “Where there’s a will there’s a way!”
There really is no secret to increasing your net worth other than living below your means and saving what’s left over. If you spend less than you make, the rest is available for putting into savings or investments like stocks or real-estate. This is where your money will grow and eventually increase your net worth!
Resources to Increase Your Net Worth
A Net Worth Tracker
Your net worth can change from year to year. If you are not conscious of what is happening with your money, you might be mindlessly letting it slip through cracks. Your investments might be getting ransacked with fees or you might be paying for subscriptions that you forgot about.
Personal Capital is a FREE tool that will connect to all your accounts: bank, credit, retirement and otherwise. What’s more is that it will create graphs and charts to show you how your net worth is changing and how your financial behaviors are affecting it.
You’ll see if your portfolio is too cash-heavy or if you might have too much in international stocks. The analytics are great. It sounds geeky, but that’s what it takes to get improve your ) You can use the desktop version or the mobile app.
A Plan to Dump Debt
I find the biggest challenge with net worth is having too much debt. The statistics on the average American household debt is scary: $130,000. At one point, we had over $120,000 in debt and didn’t even own a home!
Thankfully we made a conscious effort to get out of debt completely in 2013 and have not looked back. I get so many questions about how we did it.
We used the plan in Dave Ramsey’s Total Money Makeover to get out of debt. Get a copy of the Total Money Makeover book new or used here (you can also download it instantly to your phone via the kindle app.)
I also suggest you get the Pay Off Debt app. It helps you create a total calculation of all your debt, plus a payment plan to totally eradicate it!
Don’t forget, if you need to get a list of all your debts, you’ll likely need a credit report. Credit Sesame has a free one you can pull at any time.
- Personal Capital– Free tool to track net worth
- Get Out of Debt eCourse, Aja McClanahan
- Total Money Make Over, Dave Ramsey
- Pay Off Debt App
A Plan to Increase Your Income
One of the game changers for us was increasing our income. This really made the difference in attacking debt and saving a huge pile-o-money.
I started a database consultancy that grew to six-figures to help with our financial situation. The best part was that I was able to work from home about 20 hours a week. Though you can improve your financial outlook with the money you already make, I find that you get better, quicker results adding a bit of hustle to your endeavors.
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