Preserve A Reserve

I have known and seen many millionaires who didn’t have enough cash upon their death to even pay for their own funeral expenses. How can this be? The fact is, many privately held businesses can run into this problem for all their money is put back into the business and ownership is held privately, which means any stock does not trade publicly and isn’t easily sold. In addition, other millionaires may own significant levels of real estate whether it be farm land, raw land, commercial, or residential property. The value of this real estate may be worth millions, but they may also have significant levels of debt, or high monthly payments leaving them little to no equity, or cash reserves. This is the difference between liquid assets and nonliquid. If too much value is placed in nonliquid assets, the result can create this interesting paradox of being a cash broke millionaire. 

The problems these individuals eventually face may not be immediately obvious for while the person is alive, cash flow is often being generated to pay their bills. However, what happens when the primary owner dies, or becomes incapacitated? The result can be disheartening. For property may have to be sold, families are sent scrambling in an attempt to pay for basic needs and many times fruitful businesses and farms can fail. Granted, people in these situations have done well and are in fact millionaires. However, they place themselves often unknowingly in very risky situations by having most, or all of their assets illiquid. The solution to this problem is quite simple and valuable for all to learn, even if you’re not a millionaire, because the following stewardship model is beneficial to anyone seeking to be stronger stewards with what they have:  

Diversification: When we diversify our ownership, it basically means we don’t put all our eggs in one basket (James 4:14). Instead, we own various assets, some liquid and some may be nonliquid. Mutual funds allow for ownership in various stocks, farmers may plant various type crops, rent their land and/or incorporate livestock. Businesses can seek to spread their profits in other areas outside of their business, like retirement plans- even if the sale of their business is their retirement plan. There are many ways to diversify, including holding cash reserves for emergencies that is large enough to cover at least 6 months living expenses.   

Liquidity: By having liquid assets, such as equities, cash savings and other easily accessible sources of cash, we safeguard ourselves from the cash-broke scenario. We also provide peace of mind for ourselves and our loved ones by engaging the wisdom planning ahead offers (Proverbs 24:27). Effective planning with qualified advisors can help those with too many illiquid assets create the right amount of liquidity that will be needed eventually. 

Protection: We serve to protect ourselves, our loved ones and our businesses when we proactively plan the best we can for those foreseen and unforeseen circumstances that undoubtedly come in life (Proverbs 27:23). Obviously, diversification and liquidity help, but so can insurance, trusts, medical directives and wills. These basic tools don’t have to be expensive, but the protection they provide and the peace of mind they offer our loved ones are priceless. For they will know what to do and where to go and have the funds available to provide in those times of emergency and loss.  

Application: “Spread Your Bread” –Ecclesiastes 11:1   

It is easy to put all your eggs in one basket, not save and not engage financial planning. Thus, this is why so many of us fail to do any of these things, even when we know better. However, the rewards and benefits of establishing a plan, saving, investing, diversifying and protecting are priceless and never regretted. Although, it does require work, discipline, patience, proactivity and perseverance. So, whether we become millionaires or not, we don’t have to be broke because we failed to plan. 

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