Just How Liquid Are Your Assets?
There are many aspects to being in good financial shape. You should be able to pay all of your bills in a timely manner and still save a little money each month. In addition, you should have a few financial goals that you are working towards and a plan for paying down or paying off your debt. However, even if you have achieved all of these milestones on the path to being financially fit, you may still find yourself in a difficult situation if you don’t have access to liquid assets.
You may be wondering, “what does ‘liquid’ mean?” The liquidity of an asset is simply the ease with which you can access the value of the asset. Cash, for example, is extremely liquid. If you have cash in your hand, you have access to that asset. Savings accounts are slightly less liquid. Although you can easily remove cash from your savings account, you do have to visit the bank to withdraw the funds (unless you can access them through an ATM card). Other types of accounts, such as certificates of deposit (CD’s), actually charge penalties if you remove money from them before the maturity date.
Not all of your assets need to be liquid for you to be in good financial shape. However, at least some of them should be. Long-term savings, like college savings accounts or retirement funds, shouldn’t be very liquid. You will earn a better return on your money by giving up some of its liquidity. On the other hand, your emergency fund, should be very liquid. If you needed to access that money, maybe to pay for emergency car repairs, you don’t want to have to pay penalties or transaction fees to get to that money.
As you create your financial plans, be sure to evaluate the liquidity of your assets. Although you certainly shouldn’t keep your savings account in a jar in the closet, you will want to keep some of that money in an easily-accessible account. As that account grows, you may want to siphon some of it out of your savings account to deposit it into a more powerful investment vehicle, such as a mutual fund or certificate of deposit. Just be sure to keep some money where you can get to it when you need it.
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[...] Dana from Not Made of Money tells us how important it is to be able to get at our money should an emergency arise in Just How Liquid Are Your Assets? [...]