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What Is Liquid Net Worth Calculation And Ways To Improve It

Here we will discuss some information about what is liquid net worth and how you can calculate it. Below we have mentioned some ways for improving the net worth.

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What Is Liquid Net Worth Calculation And Ways To Improve It

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  1. What Is Liquid Net Worth: Calculation And Ways To Improve It We often compare the “What is Liquid Net Worth” of the celebrities with each other and one billionaire to another one. Net worth is just the value of everything that you own minus what you have to pay back. Calculating Net Worth helps in identifying and strategizing short-term finances and estimating the current financial health of individuals. What Do We Mean by Net Worth? Source: corporatefinanceinstitute.com

  2. Net worth is nothing but the total assets owned minus the liabilities of an individual. The net worth is calculated by adding up everything you own. Including the value of your properties, cash in your bank account, etc., and then subtracting it with all your debts. Diving a little deeper to understand the net worth. Jeff Bezos has a net worth of $201.4 billion, as per the recent Forbes edition. But it doesn’t imply that he can go and buy assets worth $201.4 billion. His liquid net worth number would be much less than $201.4 billion. What Does Liquid Net Worth Mean? Source: familybudgetexpert.com

  3. Liquid net worth is simply stated as the amount from your net worth which can be converted to cash easily. The formula of calculating liquid net worth would be; Liquid Net Worth = Liquid Asset – Liabilities. The only difference in calculating your net worth and liquid net worth is to identify which of your assets are liquid in nature. How to Identify Liquid Net Worth? Source: newflexcareer.com For calculating liquid net worth, we have to first find out the liquid assets in the balance sheet. Liquid assets are those assets that can be redeemed to their true value within a year.

  4. The major liquid assets are: ● Cash ● Stocks ● Bonds ● Savings Account ● Current Account ● Money Market account Anything that can convert to cash easily while holding its true value is considering to be a liquid asset. A car is considered an asset because it can be sold quickly and will fetch you some money but a depreciating asset. So when we calculate the liquidity of such asset classes we discount such factors. Let us understand this concept with a help of an example; ASSETS WORTH (₹) CASH 10,000 HOUSE 50,00,000 CARS 500,000 STOCKS 1,00,000 BANK ACCOUNTS 4,00,000

  5. TOTAL ASSET 61,00,000 LIABILITIES WORTH (₹) HOME LOAN BALANCE 30,00,000 CAR LOAN 3,00,000 CREDIT CARD DEBT 50,000 TOTAL LIABILITIES 33,50,000 To calculate the net worth : TOTAL ASSETS – TOTAL LIABILITIES = NET WORTH 61,00,000 – 33,50,000 = 27,50,000 From the above example, we get the net worth of the individual to be ₹27,50,000. Now calculating the liquid net worth is similar, except while calculating the net asset the fixed assets are not included. So in the above case, we’ll not include the car and the house. However, the calculation will include Cash, Stocks, and Bank Accounts. Liquid net worth calculation will look like: ₹1,00,000 (Cash) +₹1,00,000 (Stocks)

  6. +₹4,00,000 (Bank Accounts) ₹6,00,000 Total Liquid Assets ₹30,00,000 (Home Loan Balance) +₹3,00,000 (Car loan Balance) +₹50,000 (Credit Card Balance) . ₹33,50,000 Total Liabilities TOTAL LIQUID ASSET – TOTAL LIABILITIES = TOTAL LIQUID NET WORTH 6,00,000 – 33,50,000 = (- 27,50,000) In the said case you can see that the total net worth is very different from the liquid net worth, which is a total negative (- 27,50,000). The reason for this negative return is because of the fact that the total liabilities are greater than the total liquid assets.

  7. Why Does Liquid Net Worth Matter? Source: livewell.com When we talk about financial freedom, the liquid net worth matters the most. If the income statements have more illiquid assets then it becomes difficult for an individual to manage the finances. Liquid Net Worth gives you an idea of the amount you can raise within a day by liquidating the assets. No matter how wealthy a person is, it always becomes difficult to turn the wealth into cash quickly and the person may run into trouble. Therefore when you chase financial freedom you will have to rely on your liquid net worth to cover all your expenses.

  8. How to Improve Your Liquid Net Worth? Source: mava-foundation.org Having a red or negative figure on the balance sheet is common, especially when someone has just started off with his/her career. Adjustments are required in the balance sheet that is why it is very important to track the liquidity of the net worth frequently. Now if you are focus on your mission to increase your liquid net worth, here are some options for it: LOWER EXPENSES: Expenses tie directly to the liabilities and lowering the liabilities will eventually increase your net worth. To start with, you can reduce your credit card bill. To lower the expense one should make a monthly budget, a budget will help you provide clarity on your spendings and will help you track them down.

  9. EXPAND YOUR INVESTMENTS: Investing helps an individual increase their assets in the long run. When your earnings increase and your expenses are less the next logical step is to invest the money saved up. The more investment is made in the stocks and bonds portfolio the more it helps to earn the compounded interest. Which will then work in your favor and increase the liquid net worth. LOWER INTEREST RATES: If your credit card balance or the loan balances are high get them refinanced at a lower rate that will speed up the debt reduction process. Lower interest contributes more money to the principal amount which knocks off the loan faster. PAY DOWN LOANS: Try best to pay off the loans, especially the short-term loans with higher interest rates. Such as Credit Cards, Personal loans, Car Loans, and other short-term liabilities. Your net worth will increase rapidly once you reduce the liabilities and the interest payment is also less overall. Try to pay more from the minimum amount due to quickly settle the loan amount.

  10. Are Liquid Assets Important in Business? Source: stabilisator.se Yes, the liquid net worth is very important in businesses whether it’s a big or business or even a startup. It helps the business in getting easy financing and credit which can be used for various reasons. Liquidity is nothing just the ability of a business to convert its assets into cash quickly without losing its face value. The businesses that have more liquid assets have better chances of getting credit and investing. They are seen as good bets to the potential investors and banks as they have a higher probability of paying back the loan. Businesses with more liquidity in their balance sheets can get away with all the difficulties whether it is a recession or a global pandemic. When we talk about small businesses and startups, they should have enough liquid assets that can last their business for two months.

  11. It becomes important to always assess the liquidity of the business if the liquidity seems too high. Then it might be the best time to reinvest the money back into the business and expand it. Businesses can order new equipment, new inventory can also expand to other cities which will help in generating more revenue. If the liquidity is low in any business, it might be in trouble. They may want to liquidate some of the assets to get a cushion against future financial stress. Accounting Treatment of Liquid Assets Source: hubspot.net Liquid assets are listed under the asset side of the balance sheet. They are a part of the broad category of “current assets,” meaning that they can be easily

  12. converted into cash within one year. Other than cash, this category also includes cash and cash equivalents like bank accounts. Accounts receivables and inventories are considered semi-liquid types under the liquid asset category itself. The realization of semi-liquid assets is subjective and liquidation may take some time. Also for banking institutions and Non-Banking Financial Institutions, the liquid assets may be placed on different sides of the balance sheets. Final Thoughts Liquid net worth is important to keep the financial health running. It tells you how well prepared you are for any financial emergency and how close you are to achieving financial freedom. That is why you always need to calculate, keep track and find ways to increase your liquid net worth. For more finance-related concepts you can have a look at the FinanceShed, and stay tuned for more updates Contact Us : Website : https://financeshed.net Email Id : financeshedd@gmail.com To Connect With Us Visit 

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