What are Net Income, Net Worth and Liquid Net Worth?

[Mika]

In order to understand your financial health, you need to know about your net income, net worth, and liquid net worth.

Your net income is your earning after you pay your taxes and payroll reductions. Net income is different from net worth.

Net worth is the total value of your assets in terms of current market price after liabilities and debts deduction.

Liquid net worth is the portion of your net worth that can be easily converted to cash, for example, stocks, bonds, crypto assets, etc. Jewelry and property are not liquid assets. Liquid net worth will always be lower than your net worth.

Calculating your net income, net worth and liquid net worth will help you understand how much you own, how much you owe, and how much you need to earn in order to pay your debts and save for retirement.

 

[btaliat]

Thanks for taking us back to the basics economical terms. I didn't understand this concept at all and even up till now I don't bother to know how this affect me as a person. I know it is wrong because at least ones worth is needed to know the status that one belongs to in the society.

 

[Alexandoy]

When I was in college it was the Net Income that was most important in the business as was emphasized by our professor in the Accounting subject. I remember liquidity because it was connected to water in the explanation that until now I cannot understand the connection. Anyway, being liquid means you have the money for your disposal. That's the reason why my wife has a big amount of cash in our home vault. She wanted to be financially liquid all the time.

 

[Jasmine]

Good explanation. But I think jewelry can also be categorized into liquid asset. If your jewelry is gold and diamond, you can easily sell your jewelry. You can even get a loan against your gold jewelry. Selling your property is might take time but you maybe able to sell your jewelry in 1-2 days.