Liquid net worth is an expression used in the financial world to denote the total cash value of assets that you could sell within a month at a fair market price, less any debts or liabilities. Liquid net worth is, therefore, the best indicator of a person’s potential wealth because it is not like total net worth that gives a broader figure where the liquidity of the assets is not taken into consideration.
Appreciating your fluid asset position can be beneficial in many ways. Firstly, analysing the information of the given program of the debt service in this ratio the investor receives information about the ability of the company to meet short-term obligations and the financing of unforeseen expenses by selling intangible assets or debt. It is very important to maintain a positive liquid net worth as it implies a good financial condition and the absence of any bankruptcy problems in hard time.
Secondly, liquid net worth significantly influences personal planning and budgeting. It can assist you in determining the best time to consider significant-life events like purchasing real estate, venturing into the world of entrepreneurship, and saving for college. Cash and liquid assets give a person a level of cash on hand with which a person can rationalize the decision-making process.
Further, the liquid net worth is one of the criteria used by lenders and financial institutions in assessing an individual’s creditworthiness or credit-worthiness and qualifications for loan eligibility and entitlement. Higher liquid net worths can facilitate access to credit and may even lead to more favorable credit terms where interest rates and borrowing capacities increase.
If you want to determine how much you are actually worth, here are the steps to take: Firstly write down all your liquid asset balance along with cash, money in saving bank, money in checking bank, money in other liquid bank asset. After that deduct temporary costs which are loans, credit card bills, bills that you will have to pay. The sum shows what remains after the locking-up percentage is applied and reflects your liquid net worth.
Thus the knowledge as well as observation of the liquid net worth can help one in achieving set goals of financial health and wealth security. This explains why you always need to keep the required cash flow in the business for short term needs, and also to pursue certain opportunities in the market for long term financial gains.