Your net worth consists of your assets subtracted by your debts. While some assets are tangible, some are intangible. These are known as liquid assets.

Liquid assets can further be defined as assets that can get converted into cash quickly. Some examples of liquid assets include cash, stocks, mutual funds, bank accounts, ETFs, and money market funds. Assets such as valuable items, real estate, and vehicles are not considered liquid assets since it takes longer for them to be converted into cash. Moreover, some of these might lose their value.

Liquid assets are important because of the following reasons:

Emergency
Emergencies don’t inform you about their arrival, which is why you should always be prepared for the unexpected. When you have different types of liquid assets, you are better prepared for a personal emergency, even if it were to make you financially crippled. You will be able to immediately get back on track without stress if you have sufficient liquid assets. For example, if you are laid off from your job, then you can still manage to pay your bills and buy groceries until you find the perfect job because of your liquid assets.

Low risk
Markets are not always the same, which means you need a way to access your cash quickly whenever needed. Liquid assets have a lower risk factor when compared to other types of assets. This is especially true when the market is uncertain. Let us say that you have a savings account in a bank where you are saving up for your child’s tuition fee. If an emergency occurs or if you need quick cash, then you can use some money from the account. But while the money is there you know that it is safe and no one except you can access it.

Investments
The different types of liquid assets can help when it comes to investing. You can make use of liquid assets to buy additional investments at the perfect time. You do not have to sell off your other investments, which makes it a win-win situation. When the time is right or when you wish to, you can sell the other investments. This enables you to freely invest without feeling like you are stuck in a pickle. Liquid assets can, therefore, help you invest.

Financially strong
Applying for a loan requires proof that you can repay it. In this case, liquid assets can prove to be beneficial. There are higher chances that your loan will get approved if you have liquid assets. For example, if you wish to buy your dream home and want to apply for a loan, the lender will ask you for proof to ensure you can make payments on time. When you show that you have liquid assets, such as savings in your savings account, then there are high chances of your loan getting approved.