If your car crapped out on you today would you have enough liquid assets (cash or as good as cash) to get it fixed immediately? The average cost of major car repair was $6,880 in 2000. I sure as hell don’t have that kind of money in cash. Sure i could sell the car to pay the cost but that doesn’t solve the problem. I strongly believe in Saving while In debt for the reason that if an emergency came up, i would rather pay for it with cash than credit.
The question i brought up is one everyone should ask themselves. This is true for any major emergency, tragedy or accident. For instance, car accidents. Yes you have insurance but what about time missing work? Will you lose money by not being able to work? Do you have cash to sustain yourself for a month or more? Heaven forbid the house burns down, or you lose a loved one. This is the financial version of “Worst Case Scenario”
Having Cash on hand or in high interest yielding savings accounts is considered Liquid Assets. Owning cars, homes, or other valuables would be assets but because they require selling, are not liquid.
This brings me to my second point, Do you have enough assets to meet debt obligations? You can find this out simply by subtracting your total debts from your total asset value. Say you have a car loan for $8000, and a credit card with a balance of $5,000. Then your assets are the Car, worth $5000 if you sold it now, and nothing to show for from the Credit Card debt. This puts you in a pretty bad place of being -$8000 if you sold off all your property.
If you are in the negative do you know why? Do you owe more than your car is worth? Did you Max out your card and have nothing to show for it?(nothing to sell off to pay off your card.) If you have a valuable with a loan attached to it, will selling the item fully pay the loan?
