Sunday, September 2, 2012
What is Liquid Net Worth mean?
Liquid net worth is the diferrence of liquid asset to the debt or liabilities. The liquid net worth compute how much cash that we can spend. The liquid asset is very important for our life. We need cash to buy food or beverages. If you go vacation to underdeveloped country, some cafe may not receive your credit card. They just need cash. Therefore, you should change your money to the destination local currency.
Beside paper money and cash, there are some liquid asset that you may have. In your country, the suppermarket still receive your debit card. You can use it to buy meat, vegetable, cereal, milk, for your daily necessity.
When you go to cafe, you can also pay the food and beverages with the debit card. Surely, your asset will decreases if you often eating out.
Even a company need liquid asset for buying inventory, buying raw material, paying the salary, paying tax, and others. The company is impossible to pay the employee with table or car. The employee will not receive the office inventory but they just want cash.
The lack of liquid asset can disturb the company operational so the man does. A health company must have a good liquid net worth.
The money that you put in investment is also liquid asset too because you can cash the money easily. It needs few hours or second to cash the asset. When you need money, you can ask your broker to sell the stock. Surely, the stock price is same with the market value that day. You can either win or loss in selling stock that day.
Though the investment is a liquid asset but we cannot predict the value of asset like a cash. Today, our stock price is $ 1,000. The next days, the price might increase or decreases. Beside stock or equity, the liquid asset from investment are non-IRA mutual Fund, ETF, and others.
The other liquid assets is precious metal such as, gold, silver, platinum, and paladium. We can sell the metal at jewelry store or online store such as Amazon and eBay. The precious metal price is stable unlike stock or other capital market investment. The best investment metal is precious metal bar.
To calculate the liquid net worth, you add all the liquid asset. Then sub it with your debt. It is good when you have a positive liquid net worth. If, on the other hand, you have negative liquid net worth, you need to add the liquid assets.