Liquid assets are assets (things you own or are owed) that can be easily converted into cash.
The money in your checking account is a liquid asset – it can be accessed any time at the bank or by using an ATM. On the flip side, a house isn’t liquid at all. You may have sunk a million into purchasing it, but if someone asks you for that same million in cash tomorrow, you won’t be able to hand it over.
Net worth is a way of describing the overall monetary value of a person or a company. You can calculate your net worth by subtracting the money you owe from the money you have.
To put it in business terms, let’s talk about assets and liabilities. Liabilities are monetary obligations like debts, fees, or loans. Assets represent everything a company owns, including cash, investment, properties, and equipment. So if you run a cupcake cart that has $5,000 in assets (including cash, cupcake supplies, and the cart itself), but you have to pay your grandmother back the $1,000 she lent you to get started, your cupcake cart’s net worth would be $4,000.
The obvious answer seems to be that a person or company is worth however much money they have, but that number isn’t always easy to figure out. It can be hard just to figure out how much money you have in the bank at any given time: you can print out an account statement, of course, but what about all the checks you’ve written and purchases you’ve charged to credit cards that have to be deducted from that number? How do you come up with a number that reflects what you’re really worth?
This number is called net worth. For both people and corporations, net worth is represented as total assets minus total liabilities. But even though the equation is simple, the calculations can be complicated. Anything of monetary value is considered an asset; any debts or payments you’re obligated to make constitute liabilities. So your house is an asset, but your mortgage is a liability. Your car is an asset, but your lease payments are a liability. Your salary is an asset, but your bills are all liabilities. You have to take all these little additions and subtractions into account in order to figure out your net worth.