Liquidity: Why It’s Important
If you are trying to assess not only your financial security but also your ability to take your next major financial step, consider evaluating the “liquidity” of your finances. “Liquidity” refers to the ease at which you can access or convert an item to cash.
Here are three things you need to know about liquidity and your money:
- What Is and Isn’t Liquid: Cash is considered our most “liquid” asset. Stock shares and savings bonds are considered liquid, while something in which our money is more tied up, like land or real estate, is not easily converted into funds and is thus less liquid. Additionally, if a person or business has accrued a good deal of debt, this indebtedness is considered a mark against their liquidity.
- Why Liquidity Matters Now: If we do not have a fund of cash saved and accessible for use in the case of an emergency, we risk not only going into debt, but also finding ourselves suddenly unable to cover both urgent and basic needs. By keeping a portion of our earnings liquid at all times, we increase our ability to face a tough situation feeling in-control and reassured. Set a short-term goal of saving up each week until you have an emergency fund large enough to cover one month’s unemployment.
- Liquidity Improves Your Odds: Have a dream home in mind? If and when you decide to pursue home ownership, your ability to receive a seller’s approval will rely on more than just your credit score: a solid foundation of accessible cash funds will be the ideal demonstration of your financial viability. Also, remember that buying a home is a major financial step that most likely requires long-term strategic planning and saving.
While it may take time to decrease our debts and increase our liquidity, the resulting financial stability is very well-worth our effort. If you are struggling in general to reach a place of liquidity, consider boosting your income with a second career.
To learn more ways to improve your financial life, visit the Syncis blog at https://www.syncis.com/blog/.
