Jan 28 2009
Common Financial Problems we experience.
The financial problems we face in our lives can be categorized by the letters L-I-V-E-S.
L. LACK OF LIQUIDITY – Liquidity is the possession of sufficient cash and/or income to pay bills, debts, taxes, and other expenses on time. A lack of liquidity is the inability to quickly turn invested capital into spendable cash without incurring unreasonable cost. This problem can result in a forced sale of assets at pennies on the dollar. For instance, if we must sell stocks or mutual fund shares in a “down market,” or if an executor must sell a valuable real estate portfolio to pay federal or state death taxes and administrative expenses, the buyer will offer to pay the lowest possible price for the most precious asset. This forced sale often becomes a “fire sale,” a loss of prime growth or income producing assets at a fraction of their real value.
I. INADEQUATE RESOURCES – Insufficient capital or income in the event of death, disability, at retirement, or for special needs such as college or preparatory school or to provide needed services for a handicapped child.
I. INFLATION – Not enough has been done to “inflation proof” our portfolio. We need to understand the crippling impact of inflation on each dollar’s ability to buy goods and services.
I. IMPROPER DISPOSITION OF ASSETS – We are leaving the wrong asset to the wrong person at the wrong time and in the wrong manner. For example, we are leaving a sports car to a 10-year old child or $100,000 cash outright to a 21 year old college student.
V. VALUE – Not enough has been done to stabilize and maximize the financial security value of the our business and other assets.
E. EXCESSIVE TAXES – Excessive taxes add to the cost of an investment and retard progress toward our objectives.
S. SPECIAL NEEDS – We have desires that go beyond mere quantifiable goals. Psychological assurance and comfort should be part of the financial planning process. For example, we may want to provide additional levels of financial care for a spouse or children who are disabled or emotionally troubled.
