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Asset Rich but Cash Poor

 

Written by R. A. Stewart

Asset rich but cash poor is when one has substantial non-cash assets but has little money to spend. It is not uncommon for someone to have a home worth several hundred thousand dollars but are struggling to pay their weekly household expenses.

It is not only real estate that can be considered non-cash assets; a retirement account and a business fit into this category because you do not have easy access to wealth which is tied up in these things.

Having an asset which can be easily turned back into cash is important. 

I heard recently that the over 60s considered their home as their biggest asset. This is an age when retirees think about travelling. Personally, I don’t see the point in the elderly spending their money on their house only to just leave the house to someone else when they pass on. 

The elderly have requirements that can turn out to be costly in later life. Therefore, having liquid assets which can be easily turned back into cash is important.

Health issues can strike at any time and without warning, therefore having some kind of financial cushion can soften the blow.

Solutions to being asset rich but Cash poor

  1. Downsizing

Living in a smaller less expensive house can release capital which can then be invested in liquid assets. Diversify your wealth so that there is a balance between non-cash and cash assets. Living a more modest lifestyle will enable one to live more comfortably. 

  1. Equity Release/reverse mortgage

This is when you borrow money using the capital in your home. The money is paid back along with the interest when you die. This option is not suitable for those who want to leave their property to the young ones in their will.

  1. Live within your means

Set a budget and stick with it. Get into the habit of saving and investing. Don’t fritter your money away without any thought for the future.

  1. Invest regularly

Don’t just invest into your retirement fund and leave it at that. Get into the habit of investing some of your discretionary spending money. These days online investing platforms have made it possible to drip-feed money into the share market. It is just a matter of being a consistent saver.

Your Personal Circumstances

Everyone’s financial circumstances are different, therefore any adjustments you make to your asset base must be in alignment with your own goals and financial situation. You may have most of your assets in real estate and still manage to live comfortably. If that is the case then you are doing well.

The thing to consider is that many people like to use their home as part of their retirement fund. By downsizing in retirement, they are able to start travelling abroad.

It is all about living in balance and clearly setting out your priorities. Any decision you make regarding your own asset allocation must be your own and no one else’s. 

Owning assets which can be easily turned back into cash when needed is convenient when the time comes. I remember a retired chap told me that he bought a new car using money he had in his kiwisaver account. This was just prior to when the pandemic of 2020 started. The markets had started to fall after he had bought the car. I told him that no wonder he is smiling because he would have had less money in his kiwisaver if he waited another month to buy that car. This fellow also told me months earlier that his wife had a knee operation costing 30k. I never thought to ask him how he paid for that. 

Health issues will creep up on you and having the means to pay for it all is a problem for a lot of people. Setting up your finances smartly can set you up for the latter part of your life.

About this article

The content of this article is of the opinion of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised.

You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Liabilities: what they are

Liabilities: what they are

Written by R. A. Stewart

A liability is when you have a debt to pay. You are responsible for that debt until it is paid. The opposite of a liability is an asset. It is something which provides some kind of value to you.

An example of a liability is when you have borrowed money from a finance company to purchase a car. You pay a certain amount to the finance company each week or fortnightly. It is a liability because it takes money out of your pocket and reduces your wealth.

An example of an asset is an investment with a finance company which lends out money to car buyers. This is an asset because it puts money into your pocket and increases your wealth.

Borrowing money is not the only type of liability which can reduce your wealth.

Others can be, keeping pets, smoking, drug taking, drinking, hobbies, and so forth.

Have you ever heard of dog owners spending thousands of dollars on vet bills when for just $50 they could have had their pet pooch put down. I know of some people who have spent $1,000 on a vet bill for their cat. If that is not financial stupidity I don’t know what is.

Emotional spending is very costly in the long term.

Borrowing for something which does not give you anything in return is a drain on your future financial welfare. Paying for a holiday is a perfect example. This is something you can do without. If you don’t have the money you don’t go on holiday. It’s as simple as that.

Hobbies can be expensive; have you ever seen those news items on television where some collectors have spent thousands of dollars on their items. Whether it is a doll collector, model train collector, or whatever, these people spare no expense in getting their hands on the next item to add to their list.

Becoming an investor rather than a consumer will help you to be better off financially in the long run. By minimizing your consumer purchases and investing that money instead you will build up an investment portfolio, whether that be in the share market, property, and the like. Stuff doesn’t last long and it loses its value over time.

Investing in yourself will pay dividends in the long run if you apply what you have learned. It is just a matter of applying whatever is applicable to your own life. There is a lot of investment advice on the internet and in books but not everything you read will be applicable to your personal circumstances. Having the ability to discern which advice to follow takes experience.

What you spend your money on today will have an effect on your future lifestyle. It is all about making the right choices in life. Politicians talk a lot about achieving different outcomes for certain groups of people. Personally, I think that it is choices which people need to take responsibility for because the only reason why there are so many different outcomes is because people make different choices.

About this article

This article is of the opinion of the writer and may not be applicable to your own personal circumstances therefore, discretion is advised. You may use this article for content for your website, blog, or ebook.

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