“So LIQUID I Could Float In My Cash Flow” me

Liquidity is how easy it is to transform your assets into cash. You may have assets (things you own that are worth money like cars or in terms of a business = Inventory) or Capital (things that you own that help you generate more money) but if you are not able to sell those things to get cash when you need it, your money is tied up. While you may still look good on paper and have good credit, you may as well be broke if you can’t buy groceries with the worth of your tractor. Think of Monopoly, some players rush to buy property and end up with no free cash to bail themselves out of jail, or pay when they land on someone’s property, how easy is it for you to sell that property and get hard cash? if its easy, then we would refer to you as being liquid, if not, then you aren’t liquid.

A genius example would be that of how fast can you turn an ice cube into water? water being the ‘liquid’ form. if its easy then you would easily transform it into liquid form, if not, then you get no liquid hence you are illiquid.

Examples of assets that are liquid: 

include cash held in a safe deposit box, checking accounts, saving accounts, money market accounts, mostly current assets.

Examples of  illiquid Assets:

The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity

Buildings, Machinery, Cars, mostly non-current assets.

#moneymonday

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