May 30, 2012 The importance of being liquid
Recently, a large sum of liquid funds had to leave my main checking account to pay taxes. Normally it would not have been a big deal because the Finance Fox always has a plan, but in this case, nothing could be done except pay the fee. Watching most of my childhood savings and frugality go out the window hit home hard, but had I not kept myself liquid I would be in a sore spot right now. Here’s why:
1. I would need to tap into my retirement money, which would then suffer penalties.
2. I will have less investing over time, so that I started early becomes more and more irrelevant.
3. I lose the benefits of credit matching for the amount I put in.
Being liquid is awesome, but you also need to make sure a certain amount is locked into other assets and investments. When all funds are liquid they’re easier to spend, so it’s important to have a mix. This mix can be anything you feel comfortable with, but by in large 20-30% liquid is a good place to be when you’re young, 40% liquid when you hit the “family” stage, and 80% liquid when you’ve reached the golden years.
What’s your liquid to non-liquid asset ratio?