These are tough times. But thoughtful choices can stretch the dollars you get.
What is a non-liquid asset?
Assets are classified as either liquid or non-liquid. A liquid asset can fairly quickly and easily be turned into cash, while a non-liquid asset cannot. A home is a non-liquid asset because it might take several months to find a buyer for it and several more weeks before you receive the money from the transaction.
When you calculate your net worth, you likely consider all of your assets, from checking and savings accounts to property such as vehicles, real estate, jewelry and other valuables. However, even if you come up with a net worth of $1 million, that doesn’t mean you instantly have access to that much money should you face an urgent financial need. That’s because many of those assets would have to be sold for you to tap their value. This makes them non-liquid assets; they may have a significant monetary worth, but they’re not something you could rely on for cash.
In addition to taking time to convert to cash, non-liquid assets often lose some of their market value when you sell them. If you wanted to sell a major piece of property such as a home or land, you might have to sell it at a steep discount to move it quickly. When you convert a liquid asset such as a savings account to cash, however, you can usually do it immediately and without it losing any of its value. This is because you simply withdraw the money, making it immediately accessible in many cases.
Non-liquid asset example
If you have $5,000 in a checking account and $10,000 in a savings account, then you have $15,000 in liquid assets that you can access at pretty much any time. If you own a home that’s worth $200,000 and a plot of land that’s worth $75,000 you have $275,000 in non-liquid assets. If you need cash quickly to pay for an unexpected medical bill, you’d have to tap the money in your checking and savings accounts. Your home and land couldn’t be converted to cash without considerable time or loss of value.
If you’re short on liquid assets and need cash quickly, a personal loan might be the answer.