Money Explained: The Difference Between Having Wealth and Having Liquidity
What's the difference between wealth and liquidity, and how can having too much or too little of either affect one’s financial situation?
According to the World Wealth Report 2026, released by Capgemini, the U.S. created 736,000 new millionaires last year, bringing the total to a record 8.7 million millionaires. Capgemini also informed CBS News that the number of American millionaires was at its highest level since it began tracking wealth trends three decades ago.
But having money isn't the same as being able to spend it. Let's explore.
The Difference Between Having Wealth and Having Liquidity
The report measured wealth by investable assets because there’s a difference between having wealth and having liquidity.
“Wealth is everything you own that has value, like your home, your car, your investments, your savings,” said Barry Nussbaum, a senior lawyer and owner of Nussbaum Law. “Liquidity is about how quickly you can turn what you own into cash when you need it.”
While your home is an asset, it’s not something that can be sold in 24 hours. Liquidity is the money you can access right now or within a few days without waiting, selling at a loss or paying a fee. Liquidity is important because you want to be able to access your money in case something arises.
Cody Schuiteboer, a financial expert and CEO of Best Interest Financial, made the following distinction between the two:
"Wealth is the value of your assets minus your debts. Liquidity is cash that is, or can be, readily available. Wealth can be illiquid assets (e.g., home equity) while liquidity is cash that can be used to make a purchase.”
In the perfect world, you would have wealth and access to funds, but that isn’t always the case.
What Happens When You Have Too Much or Too Little of One?
Nussbaum said that too much wealth with too little liquidity is a problem. For example, if you have a home valued at $800,000 but only $400 in your checking account, there could be serious issues in the event of an emergency (such as a job loss or a medical bill). You can’t cover an emergency with your home because it would take time to sell the place. When you have too much of your wealth tied up in assets, you’re unable to make moves when life gets expensive or when a situation arises.
On the other hand, too much liquidity is a problem as well. Nussbaum said that money in a savings account or in cash loses value over time due to inflation, which gradually reduces its purchasing power. The experts agreed that if you're sitting on too much cash, your money is doing nothing for your future, which can hurt you in the long run. While the goal is to use your money to make more money, you realistically shouldn’t be tying up all of your savings.
Building and Balancing Wealth and Liquidity
Nussbaum recommends that if you want to build and balance both, you should start by figuring out how long you could survive financially without selling any investments if you lost your job tomorrow.
If you have a month or less of savings, then you want to focus on building liquidity first through increasing your emergency fund. If you don’t have at least three months' worth of expenses saved up, then it means that you’ve tied up too much of your money. You could end up borrowing money or acquiring unnecessary debt to cover unexpected expenses.
Once you establish the buffer, you should focus on building wealth through appreciating assets, such as real estate, investments, and retirement accounts. Schuiteboer said that, generally speaking, liquidity trumps wealth accumulation for most people.
Nussbaum concluded, “The rule of thumb is this: Liquidity covers your life. Wealth builds your future. You need enough of the two to do each job properly.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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