How Liquid Is Your Net Worth?

How Liquid Is Your Net Worth?

Net worth...the difference between what you own and what you owe. Over the years I have reviewed literally thousands of financial statements...and consequently net worth's. Of course, they range from small to large and everywhere in between. Your goal should be to increase your net worth over time, thereby providing flexibility and financial "cushion" during good times and bad. Big question is what type of assets and mix thereof should one be accumulating and how quick can they be converted into cash? Make no mistake about it, when you peel back the onion, it's liquidity (or cash) that rules the day! Top heavy assets in real estate, for example, may look good on paper but it's not going to do you much good if you can't sell it...or if it takes too long to sell...time is money. And real estate assets should preferably consist of income producing property (hence throwing off cash) with minimal debt and paying back as fast as cash flow permits...i.e. short amortization. Make sure you are diversifying and balancing your concentration of assets and reducing debt over time...with those that can be converted to cash quickly like equities, bonds, and plain old cash! Do you have enough liquid assets? Make sure you are building them into your portfolio systematically or one day you will, in the not too distant future, regret it!

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