Your first economic priority needs to be liquid cash.
There are two reasons to have a ready stash: something good happens or something bad happens.
Good things that require cash:
- Your child is accepted to a terrific (but more expensive than planned) school
- You have an opportunity to invest in a vehicle that will enable you to reach the Financial Freedom Point faster than you planned on.
- You get to start your own business
- You get offered a ‘once in a lifetime oportunity' and need to pay for it
Bad things that require cash:
- Job loss or falling income
- Medical procedures
- An elderly parent in failing health
- Home repairs
A recent Urban Institute study on workers aged 45-79 is troubling:
- Average wages for retirees from long-term jobs (with more than 10 years of service) who continued to work declined by about 39 percent
- Median wages plunged by 53 percent
- Older people displaced from long-term jobs who found other employment experienced average wage losses of about 19 percent
This study shows that we can no longer assume wages and income will always increase or always be there. Having some cash available can make the difference when life happens - will a setback be a bump in the road or a cliff?
Too many people have too little cash in the bank - blindly hoping that nothing bad ever happens, or if t does, the credit cards, home equity lines, or government stimulus programs will bail them out.
Set a goal for yourself and your family to build to at least $10,000 in liquid savings and then grow it from there. If you are at a big company that has to lay people off to make their quarterly numbers, or if you are in an industry that is struggling right now, you will want even more cash available to you.
In my "Start with the House" philosophy, I place liquid cash at a higher priority than buying a house, paying off credit cards, or saving for retirement. Having sound priorities for your money will make it more likely that you will succeed financially.
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