To a great degree, when you need to take money out to pay for an unforeseen event, would it be easier to take $15,000 out of your savings account or sell your land? It depends if you have $15,000 in the bank. Asset Rich, Cash Poor Can Be Uncomfortable Having liquid money provides financial security for disasters and opportunities alike. Those assets for readily available as cash with little or no loss of value provide liquidity. While liabilities remain the same for both calculations, your liquid assets have more significance when unforeseen events occur. It is a far more realistic reflection of your financial condition should you face an immediate need for money, such as a medical crisis or a business opportunity. Liquid Net Worth Is A Realistic Snapshot Of Your Financial Condition Other assets like your house or car take time and negotiation to sell if you need money. For example, stocks and bonds tend to be more liquid than other assets as they can quickly and easily convert into cash. Net worth remains a helpful benchmark but depending on the type of assets you have it may be a less accurate picture. However, it doesn’t consider the liquid nature of your assets. It is simply the difference between assets and liabilities. Understanding your net worth and how to calculate it is hugely important for measuring your financial health at a particular point in time. You can’t lie about cash, stocks, and bond values. Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email “Liquidity is a good proxy for relative net worth.
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