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Are you liquid-asset poor?

By Naomi Mannino ·
Friday, February 3, 2012
Posted: 6 pm ET

If you have a nice house and a nice car (or two),  you and your spouse both work, the fam has all the latest "stuff" and you even contribute to a 401(k), you're doing OK, right? 

If you have no easily accessible cash savings, that assumption may be wrong.

None of these "things" easily or quickly convert to cash in an emergency. According to the 2012 Assets & Opportunity Scorecard, released by the Washington, D.C.-based advocacy group Corporation for Enterprise Development, there's a new name for middle class households that don't have enough cash savings to financially weather a medical emergency or job loss: liquid-asset poor.  The report found 43 percent -- 127.5 million American households -- are one paycheck away from a financial disaster.

Some other disturbing report findings:

  • Forty-six percent of employers do not offer health care.
  • Fifty-five percent of workers do not have or do not participate in a retirement plan.
  • Fifty-six percent of consumers have subprime credit scores.

Earlier this week, I wrote a post about a savings plan where every 1 percent of cash savings counts. And this is especially true of the liquid-asset poor, which are often dual-income spouses spending on lifestyle instead of saving cash for an emergency.

"Spending beyond your cash and into debt is normal in our culture, so we put off saving until later," says Dave Ramsey, author of "The Total Money Makeover."  "The truth is, there is never a quick or easy way to financial safety and ‘later’ comes sooner than you think."

Ramsey says once you've reached the point of being sick of the way you're handling your money, the next step is to get intense about changing it. "Personal finance is 80 percent behavior and 20 percent head knowledge. Don't let anything stand in the way of making positive changes."

To avoid being liquid-asset poor, bills and cash savings must come first in your budget. But it takes discipline and intensity, Ramsey says.

Confession time:  What do you spend money on when you should be paying a bill, paying down debt or saving the cash instead?

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Naomi Mannino
February 06, 2012 at 10:37 am

Yes, according to the report that 43% also includes the 14% of American households living at the poverty level and 27% more who are completely asset poor and do not own cars, homes or investments at all. I also have friends who earn over $250,000 per year and are worth over $1 M and are completely liquid asset poor because of all their boat loans, mortgages, car leases and credit card debt. I saw a Dr. Phil segment called "Money Rescue" where the couples just kept on buying and spending...

Save First
February 05, 2012 at 1:14 am

You nailed it with this comment: "liquid-asset poor, which are often dual-income spouses spending on lifestyle instead of saving cash for an emergency".

Dave's comment on mindset is also spot on. I have posted both of these exact sentiments on other blog entries here and since internet font is cheap, I'll say it a 3rd or 4th time.

You need to pay yourself first - that means losing all the gadgets, data plans, cable packages, luxury sedans, until you get control of your LIQUID wealth. Live within your means AFTER all savings are budgeted (retirement and liquid).

I have friends worth $1M and can't get out of debt when others are 1/6 their worth and live debt-free with tens of thousands sitting in cash reserves. In this case, having less is definitely MORE.

February 03, 2012 at 7:03 pm

I believe those 43% not just liquid-asset poor, but simply poor and live from paycheck to paycheck.
It is very common among young who usually get beginner's salaries, have to deal with school loans, and have to work really long and hard before finally having some savings, which quickly evaporate after encountering an emergency (car accident, lay off, hospital visit, etc).