The Value of Personal Liquidity in the Current Economy | Get Financial Freedom Tips | Transform Your Financial Future


Monday, March 26, 2012

The Value of Personal Liquidity in the Current Economy

The Great Recession has caused Americans to re-think how they manage their money. It is no longer trendy to take out a mortgage on a house that you cannot afford. Consumers are more aware of how much they spend on a purchase. Savings rates are at their highest in decades. This is all because people understand the dangers that come about due to a lack of personal liquidity.

What Does Liquidity Mean

Personal Liquidity

Liquidity refers to how easily you can convert your assets to cash. Someone who has a large savings account is usually considered liquid. A person who has money tied up in a home or a car may have a harder time accessing whatever equity they have in that asset. Having a high level of liquidity in a down economy can really come in handy. Your creditors want to be paid on time.

Available Credit Helps in an Emergency

One of the reasons so many people got in trouble in the last recession was due to a lack of credit. Banks stopped lending money for businesses and individuals to make purchases. Credit card companies started increasing requirements to get good rates for a credit card. They also lowered credit balances for many people as well. Many people were not able to use a credit card to pay for gas or groceries. Credit scores started to tumble as a result. This downward spiral was very hard to get out of.

How Do You Prevent a Liquidity Crisis

Living within your means can eliminate the chance for liquidity issues. Regularly depositing a portion of your pay into a savings account is a smart move. Paying off your credit card balance each month also prevents you from not having your credit line when you need it. Setting up a budget allows you to see how you are doing financially. Knowing about any changes to your income before a problem strikes gives you some time to make adjustments now.

Create a Passive Source of Income

Creating a passive income can help you out if you are experiencing a liquidity issue. Passive income is income that you do not have to work to get. Dividends from investments, rental income and revenue share from a content site are all examples of passive income. These sources of income could allow you to build up a savings account over a period of time.

What If You Are Having a Liquidity Crisis Now

Liquidity in the Current Economy
The first thing you should do is try to pay off your credit cards. Higher interest rates as well as penalties for late payments only make your problem worse. Contact your creditors to offer a settlement if you do have any savings in the bank. Figure out a way to increase your income. Taking a second job to get more money coming in is something you should strongly consider. Paying down your debt while increasing your available savings is your top priority. Selling your assets is another option to consider giving yourself some extra cash in the short-term.

Learning how to live within your means is going to help you stay financially secure. Save and invest as much money as possible. It will allow you to stay liquid while also generating passive income. Make a budget that is flexible enough to allow for changes as your financial situation changes. Taking all of these steps can help you avoid a liquidity problem.

1 comment:

  1. I think the old adage of having two months' salary in the bank for an emergency is even more important in the current economy. On the other side of the coin, many people can't even manage to save 10% of their salary, so that creates another problem.