Let’s distinguish between fixed assets and liquid assets. Fixed assets include your house, car and jewellery, solid things you own.
Liquid assets include your bank accounts and investments, amounts that you can cash in at any time to pay bills or settle debts.
Fixed term investments, which you can’t touch until the due date, form a different class of asset, for present purposes.
High earners often strive to accumulate fixed assets, believing this is the way to build wealth. But they often destroy their liquidity along the way. So they end up owning lots of fixed assets, but with huge debts, large monthly instalments and no available cash.
There are two ways to become insolvent. Having more debts than assets, or not being able to meet your financial obligations as they become due. The second one tends to creep up on people, resulting in a sudden sale of assets at less than their actual value in order to generate cash and avoid bankruptcy.
Millions of people are happy to live this way, struggling year after year from one paycheck to the next. Either because they’ve overextended themselves on acquiring fixed assets, or because they have more debt than they can afford.
Don’t be like these people.
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