Your Emergency Net Worth
People like to think of their net worth in terms of how much money they can put their hands on rapidly in a crisis. That is a good way to look at net worth.
The lower your net worth is, the more important this figure is.
For most people, most of their net worth is tied up in their home's equity, after a sale and commission.
What if they're not willing to sell their homes? How can they get money out of their homes?
For years, millions of Americans used their homes as piggy banks. They borrowed money: home equity line of credit (HELOCs). This was a big mistake, as millions of families discovered in 2009.
What if, over the next year, you had to lay your hands on $5,000 to pay a major expense? Could you do it?
I was impressed by an article on the emergency net worth of most American households. This is called liquidity, but I think it's much better to call it emergency net worth.
We are now in a major economic crisis. It is going to get much worse over the next 18 months. Now is the time when you had better have a reasonable emergency net worth.
If you don't have it, you should start building it systematically.
Saving is not easy. Borrowing on a credit card is. You had better save.