Assets can be categorized into two types: liquid assets and fixed assets. Having both fixed assets and liquid assets is essential in the short and long term. There are many types of liquid and fixed assets.

Read the following to understand the two types of assets, the differences between the types of assets, and which type of assets you should prioritize.

What are liquid assets?
Liquid assets are those which you can turn into cash without losing out on their value in the conversion process. Even if the value is reduced during the conversion process, it is minimal. Different types of liquid assets include cash, savings account, treasury bonds, checking account, ETFs, money market funds, stocks, and mutual funds.

What are fixed assets?
Fixed assets are often referred to as tangible and noncurrent assets. These cannot be quickly converted to cash like liquid assets. Oftentimes, they are called “illiquid” because it may take time to convert them to cash. Examples of fixed assets are vehicles, land, equipment, furniture, machinery, antiques, facilities, buildings, and tools.

Similarities and differences between liquid and fixed assets

• You can convert liquid assets to cash relatively easily but it’s not the same with fixed assets, which takes a long time to get converted to cash.
• Liquid assets pose a lower risk since the value does not depreciate but fixed assets carry the risk of depreciation over time.
• Liquid assets enable you to save and spend when necessary. Fixed assets, on the other hand, can be expensive if you want to convert them to cash quickly before the maturity time.
• Both fixed assets and liquid assets help you build more wealth in the long run if managed properly.
• Fixed assets are towards long-term wealth-building while liquid assets are more about being able to manage finances in case of an emergency.
• Liquid assets enable you to get cash quickly while fixed assets enable you to be future-ready since you know you have something of value for your future.

What should you give more priority to?
When you think about assets, focus on building different types of liquid assets. This is because liquid assets can cover you in the time of an emergency. One of the crucial forms of liquid assets is an emergency fund. Think about your monthly expenses and start to save for an emergency fund. This will enable you to get prepared in case of a personal emergency or a bigger emergency such as a natural disaster.

You should have enough in your emergency fund so that you can go on for months without a source of income. It is best if you start saving in your savings account. Once you think you have sufficient money in your emergency fund, you can think about fixed assets. Remember that both types of assets are important but start with liquid assets and then work your way towards fixed assets. When you manage the two properly, you will be able to have some peace of mind.