Cash Is King: Part 5 – Liquidity, Use and Control
“Cash is king” means that cash is the most valuable, preeminent, ideal position to be in.
Now we know there’s a lot of “noise” out there about the best thing to do with your money, including paying off debt or putting it into assets, retirement plans, stocks, real estate or your house.
Since the bold position of “cash is king” rules out anything else as the utmost, highest and best thing to do with your money, we must ask why. Why is having cash so important?
The financial position that allows you to take advantage of opportunity is one of liquidity, use, and control, where your money is accessible to you, can easily be converted to cash, available for you to use, and stored where you won’t have loss.
Simply stated, when you’re in cash, you’re poised for action.
Most people have very little liquidity. The problem is that any situation, emergency or opportunity, that requires cash will put you into a cash crunch, and you’ll either have to borrow and pay interest to pay for it, or forgo the opportunity. This shortfall has been the downfall of many who had plenty of money tied up in assets, but no cash to pay the bills.
If your money is in home equity, you have to qualify for an equity-out refinance, a line of credit or a home-equity loan to access it.
If it’s in your qualified retirement plan, you have to pay taxes and a 10% penalty to withdraw before age 59 ½ on distributions, or you may borrow the money with a fixed repayment schedule, and even then, you can only use up to ½ of your value or $50,000, whichever is less. If you leave your job or are terminated, the entire balance must be repaid.
If it’s in an IRA, you can’t borrow the money, and the only way to access it is through an early withdrawal before age 59 ½, which will incur tax and a 10% penalty.
If it’s in stocks or gold, you’re betting on the market to turn before it’s profitable to convert to cash.
When you play Robert Kiyosaki’s Cashflow® Game, you’ll quickly see that the reason for cash is to convert it into cash flow.
Having a million dollars tied up in illiquid assets that don’t produce cash flow, but you’re hoping for an opportunity to sell them someday for more than you paid won’t make you wealthy. Opportunities will pass you by while you wait for your assets to produce a gain.
On the other hand, having a million dollars in physical cash won’t itself make you financially free.
The reason that cash is king, is that it is the position that allows you to purchase cash-flowing assets, like real estate or businesses, that produce income over expenses every single month.
And that cash flow piles up every month for you to put to work again.
Placing a high value on cash flow necessitates having a high value on cash because you never know what opportunity lies just around the corner for the person with the liquidity to seize.
So, cast off the guilt when you’re in cash, and the pressure to invest it right away, because cash is king and those who have the cash will weather the storms and capitalize on the opportunities.
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