September 9, 2024

What are Liquid and Non-Liquid Assets?

You work hard for your money, and it’s reassuring to know you can easily access your funds when unexpected expenses pop up. If you have assets, like money in stocks or a special savings account, knowing how to turn them into cash, or make them “liquid,” is important for handling financial curveballs.

So, what are total liquid assets exactly?

We’ll review what is a liquid asset, what isn’t, and why having a little variety in your assets builds a good foundation for your finances.

What are liquid assets?

Liquid assets are things you can quickly and easily convert into cash without losing value, which is a game changer for managing your money. They’re funds that you can use immediately (or almost immediately) for expenses or emergencies.

There are two primary types of liquid assets:

Cash liquid assets: This includes actual cash and money in bank accounts, like checking, savings, and money market accounts. These assets are as liquid as they come since you can access them immediately. If you have funds in a short-term certificate of deposit (CD) account — a savings account with a fixed interest rate and a fixed amount of time during which you can’t access the account — and are approaching the end date soon, they would also fall under this category.
Non-cash liquid assets: You can’t quickly convert these types of assets into cash, like stocks or mutual funds. While they might not be as instantly accessible as physical cash, you can typically cash out on them within a few business days without losing any value, making them liquid.

What is considered a liquid asset comes down to how fast you can turn it into cash. When you have unexpected or emergency expenses, the last thing you want is to have all your money tied up and unreachable — which is why keeping some liquid assets is vital.

Examples of liquid assets

Liquid assets are important for handling immediate money needs. Here are some common liquid asset examples:

Cash and cash equivalents: This includes physical cash, money in checking and savings accounts, and funds in money market accounts.
Marketable securities: Quick-to-sell investments like stocks, bonds, and certain mutual funds fall into the marketable securities category. The state of the stock market determines their value, but you can typically liquidate them within a few days.
Accounts receivable: For businesses, accounts receivable is the money clients or customers owe. While this isn’t as liquid as cash, you can turn this into cash once clients who owe money settle the amount.
Inventory: For businesses dealing with products, inventory is any goods for sale. This counts as a liquid asset because a business can quickly convert goods into cash through sales, providing readily available funds.

These assets act as a safety net, helping individuals and businesses alike make sure they can weather an unexpected expense without putting their financial goals in jeopardy.

What are non-liquid assets?

With non-liquid assets, also known as illiquid assets, you can’t convert them into cash quickly without lowering their value. These assets are often long-term investments or possessions that require significant time to liquidate (meaning sell or convert into cash).

Here’s what non-liquid assets include:

Land and real estate investments: While real estate, like a house or land, is valuable, selling a property can take a while — potentially months or even years. Shifts in the real estate market can also affect property values, making the final sale price hard to predict.
Equipment: This category includes machinery, tools, and other equipment that’s primarily for business purposes. While equipment holds value, finding a buyer and negotiating a fair price is often time-consuming.
Art: Art pieces, antiques, and collectibles might hold significant value, especially if they are rare or sought after, but their value depends on finding a buyer willing to pay the desired price.
Vehicles: You can sell cars, boats, and other vehicles for cash, but their value decreases over time. Factors like the vehicle's condition, age, and how in-demand it is can affect the final sale price.
Retirement funds: If you’re a long way away from retirement age and have an individual retirement account (IRA) or a 401(k) (an employer-sponsored retirement savings plan), these fall under the non-liquid umbrella. Usually, if you try to take money out of these accounts before you enter retirement, you’ll have to pay early withdrawal fees. Also, because you’re taking the money out earlier, you’re decreasing the base amount that it can grow earnings on, meaning you could earn less on it and further decrease the future value of the account.

While non-liquid assets might not offer immediate financial relief in emergencies, they add to your overall wealth and the long-term stability of your finances. It’s important to include both types of assets in your financial planning.

How to build your liquid assets

Building a strong set of liquid assets is a financially savvy way to make sure you have some flexibility when life presents you with unexpected costs — like a hospital bill for a broken arm or a downpayment for a new car.

Here's how you can boost your liquid assets to prepare.

1. Set aside some savings

The simplest and most effective way to increase liquid assets is by consistently saving a portion of your income. Whether it's a fixed amount or a percentage, regular savings can earn interest over time to give you a substantial financial cushion.

2. Diversify your investments

While having both liquid and non-liquid assets is important, it’s equally important to diversify the types of liquid and non-liquid assets you keep. This means spreading your investments across different types, such as a more varied group of liquid assets. Doing this helps you spread your risk, which means if one asset were to lose value, like a stock dropping in price, you’d have a mix of others to fall back on.

To spread out your risk and reward on your liquid assets, you might consider keeping some of your money invested in marketable securities (liquid assets you can easily buy or sell in financial markets). These include stocks, bonds, and certain mutual funds. They’re a little riskier than savings or money market accounts because their value can fluctuate more, but they also offer a chance for higher earnings if the value suddenly goes up significantly.

3. Reduce high-interest debt

Paying off high-interest debts like credit card balances can improve your financial health. When you pay down debts and relieve yourself of having to pay extra interest, you can start redirecting payments that would have gone toward debt to invest in more liquid assets instead.

4. Set up an emergency fund

You don’t want to find yourself relying on credit card cash advances or dipping into money you had earmarked for a different purpose when a surprise expense pops up. Instead, build an emergency fund that’s separate from your regular savings. Work toward putting aside enough to cover 3–6 months of living expenses in an easily accessible fund so you have a dedicated source of liquid assets for surprise expenses (including, of course, emergencies).

5. Reevaluate and adjust

Review your financial portfolio from time to time to make sure everything remains healthy. Liquidate assets that aren’t earning as much as you might expect and reinvest in more promising assets. With this approach, you can make sure your liquid assets continue growing and will support your financial needs.

Stay liquid with EarnIn

Keeping up with paychecks, debts, and assets can feel like a juggling act, but new tools are here to give you more flexibility and make it easier to manage your money. One such tool is the EarnIn app.

If you need a little more liquidity in your life, our Cash Out tool lets you access your pay as you work — up to $150 a day and up to $750 every pay period — so you have the liquid funds you need to keep moving forward, whatever life sends your way.

You can also stay on top of your credit score using our free Credit Monitoring tool. This can help you keep tabs on your credit as you work toward building it along with your portfolio of assets.

Download EarnIn and get access to tools that help you stay liquid and build financial momentum.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

1. EarnIn is a financial technology company, not a bank. Subject to your available earnings, Daily Max and Pay Period Max. EarnIn does not charge interest on Cash Outs. EarnIn does not charge hidden fees for use of its services. Restrictions and/or third party fees may apply. For more info visit earnIn.com/TOS.

2. Calculated on the VantageScore 3.0 model. Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don't be surprised if your lender uses a score that's different from your VantageScore 3.0. Learn more: https://www.experian.com/assets/consumer-information/product-sheets/vantagescore-3.pdf