I have money?

January 26, 2015  •  Leave a Comment

Now that we have gone over debt, let's look at a way to protect yourself.  I'm not talking insurance, but rather an emergency plan.  Is this different than the $1000 emergency fund?  Why, yes it is.

The $1000 is to cover the emergencies that are run into while getting out of debt.  What about the larger emergencies, such as water damage, water heater goes out, HVAC system breaks down?  That's where this emergency fund comes in.

Save 3-6 months of your income and place it in a Savings or Money Market account.  I know the interest rates are not very good, but Savings and Money Market accounts are easy to access.  In business terms this is called liquidity.  

According to Wikipedia, liquidity is "In business, economics or investment, market liquidity is a market's ability to facilitate an asset being sold quickly without having to reduce its price very much (or even at all). Equivalently, an asset's market liquidity (or simply "an asset's liquidity") is the asset's ability to sell quickly without having to reduce its price very much. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for. In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. In a relatively illiquid market, selling it quickly will require cutting its price by some amount.[1][2]


Money, or cash, is the most liquid asset, because it can be "sold" for goods and services instantly with no loss of value. There is no wait for a suitable buyer of the cash. There is no trade-off between speed and value. It can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs.[3]
If an asset is moderately (or very) liquid, it has moderate (or high) liquidity. In an alternative definition, liquidity can mean the amount of highly liquid assets.[4] If a business has moderate liquidity, it has a moderate amount of very liquid assets. If a business has sufficient liquidity, it has a sufficient amount of very liquid assets and the ability to meet its payment obligations.
An act of exchanging a less liquid asset for a more liquid asset is called liquidation. Often liquidation is trading the less liquid asset for cash, also known as selling it. An asset's liquidity can change. For the same asset, its liquidity can change through time or between different markets, such as in different countries. The change in the asset's liquidity is just based on the market liquidity for the asset at the particular time or in the particular country, etc. The liquidity of a product can be measured as how often it is bought and sold.""
 
Saving 3-6 months will give you peace of mind you can weather the storm.  Once out of debt the 3 - 6 months savings will go quickly.  For your photography business, we'll discuss a concept of Cash Reserves.  Stay tuned.
 
 
 

Blessings,
Andrew Krob
 
I am not a financial adviser, nor a CPA, so please consult with them if you have any questions for your own personal situation.
 

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