How Liquid Are You?


No, we’re not talking about your daily water intake, although it’s very important! We’re talking about your current financial position and your ability to easily and quickly access funds (cash) in order to cover your monthly expenses for a period of 3-6 months.

 Asset rich but cash poor? Find out!

A recent study shows that nearly 50% of Americans live in “liquid asset poverty.”  What this means is that, if something were to happen that required a large sum of quick cash, half of us would have to depend on debt in order to cover those unforeseen expenses.

You can conduct a quick survey of your personal liquidity by simply writing down all of your assets, including cash, investments, CDs, real estate, cars, jewelry, etc., and separating those assets into liquid and non-liquid categories–you’ll be able to discover if you are asset rich and cash poor. This knowledge will help you take appropriate steps to be better prepared for the future.

What are liquid assets?

To help you get started, here is a quick list of liquid assets, those that are either cash or could be converted into cash in a short amount of time without losing much value.

–      Cash in your checking and saving accounts

–      Money Market Accounts

–      CDs

–      Stocks & Bonds

–      Mutual Funds

–      Gold / Silver / Jewelry

–      Other Valuables: art, vehicles, collectors’ items, etc.

Assets like real estate and land would be considered less liquid since you may not be able to quickly turn those into cash without them losing value. Keep in mind that any land and real estate that you still owe money on, if sold, would have to be paid off first, and only the remainder after paying your income taxes would be considered as actual assets.

How Liquid Should My Assets Be?

You’re considered “liquid asset poor” if you have less than 3 months of livings expenses easily accessible. If you faced a complete income loss and had to depend on what you have saved, would you be able to “make it” for a minimum of 3 months? If the answer is no, here is a quick, step-by-step plan to work toward. This plan will require having a solid budget where your expenses, especially your wants, are curbed and, in many cases, temporarily sacrificed in order to grow your liquid assets.

–      Save $1000 in cash for immediate emergencies

–      Save 30 days worth of your living expenses

–      Save 60 days worth of your living expenses

–      Save 90 days worth of your living expenses

–      Keep going…

Every time you accomplish each step, set those funds aside and make a commitment not to touch your 30-90 day funds unless income loss occurs. Attempt to manage other emergencies by adjusting your monthly budget or with your $1000 emergency fund.

 Unless you win the lottery, there is really no easy way to accomplish building your liquid assets. It will take commitment, temporary sacrifice, and determination. Are you ready to do this? Make a plan, set deadlines, and work hard. Pretty soon, you’ll be able to say: i’m liquid asset rich!

Image by LendingMemo