Is it true that the world's richest are actually off the Forbes list?
Why the Forbes "Rich List" Can Be So Misleading
Every year, we see headlines from lists like Forbes ranking the world's billionaires. It's easy to look at those massive numbers and think about wealth in those terms. But as a beginner on your financial journey, fixating on that one big number can be misleading.
Here’s a secret that experts know: those lists are often just educated guesses.
As Adam Fayed points out, these lists are "based on projections about what these people’s businesses might be worth if they sold out."
Think about it. If someone owns a private company that isn't on the stock market, how much is it really worth? As Shark Tank (or Dragon's Den) investor Deborah Meaden has noted, many business owners have "delusional valuations" for their own companies. It’s almost impossible to know the true value of an asset until it’s actually sold.
For those of us just starting out, this teaches a vital lesson. We need to focus on a number that’s real, tangible, and, most importantly, useful to us. This brings us to the two most important numbers in your financial life: net worth and liquid net worth.
What is Net Worth? (The "On-Paper" Number)
In simple terms, your net worth is everything you own minus everything you owe.
Assets (What you own): The value of your house, your car, your retirement accounts, investments, cash in the bank.
Liabilities (What you owe): Your mortgage, your car loan, student debt, credit card balances.
Assets - Liabilities = Net Worth
This is a great number to track your long-term progress. But it has one major flaw: it treats all your assets as if they are the same. In reality, the $50,000 in your savings account is very different from the $50,000 of equity you have in your home.
What is Liquid Net Worth? (The "Real Security" Number)
This is the concept that the Quora post highlights as a "better indication of how well somebody has done."
Liquid net worth is the value of your assets that can be turned into cash quickly and easily.
Think of it this way: if you had a major emergency tomorrow and needed money, what could you access?
Liquid Assets Include: Cash, savings accounts, checking accounts, and investments in the stock market (like ETFs, funds, and stocks) that you can sell in a day or two.
Illiquid (Non-Liquid) Assets Include: Your house, your car, a private business, collectibles, or art. To get cash from these, you’d have to go through a long and complicated selling process, and you might not even get the price you want.
A person can have a high net worth on paper (like $500,000, with $450,000 of it tied up in their house) but have very low liquidity. If they lose their job, they can't pay their bills by "spending" a room in their house.
Why Beginners Should Focus on Liquid Net Worth
As the article wisely states, "Having loads of money in assets that you may never be able to sell isn’t the same thing as actually realizing gains."
For someone on their financial journey, liquid net worth is the true measure of financial security and freedom.
It’s Your Emergency Fund: This is the money that covers a surprise car repair or medical bill without forcing you into debt.
It’s Your Opportunity Fund: This is the money that allows you to seize an opportunity, whether it's investing during a market dip or having the freedom to change careers.
It’s Your Peace of Mind: Knowing you have a cash cushion you can "press the sell button on" tomorrow is the foundation of real financial well-being.
How to Start Building Your Liquid Net Worth Today
Don't worry about the billionaire lists. Focus on your numbers.
Calculate Your Liquid Net Worth: Add up your cash, savings, and easily-sold investments. This is your starting point.
Build Your Emergency Fund: Your first goal should be to build a liquid emergency fund of 3-6 months' worth of living expenses. This is your ultimate financial shield.
Invest Consistently: Once your emergency fund is set, you can start building your long-term liquid wealth by investing in low-cost, diversified funds (like ETFs or index funds).
Building true wealth isn't about a single, massive valuation. It's about taking small, consistent steps to build a secure foundation you can actually count on.
Ready to build your financial foundation?
It all starts with a plan. Our team can help you understand your numbers and create an actionable strategy to build your liquid net worth and achieve real financial security.
Click here to schedule a free, no-obligation consultation with one of our financial advisors.
