Fast Access to Cash is Still King for Chance to Earn Big

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This is part four in a series on the Six Circles of Wealth. The first three circles are income, investments and guaranteed income. The next is cash, also known as liquidity.

Cash is an essential part of a solid financial fortress. Even the sound of the word evokes an all-over body tingling to most people. The adage that "cash is king" is true, and this is especially true if that cash is used to buy distressed assets at a huge discount. The longer the sales cycle for an asset, the more valuable cash becomes. When you sell stocks, the money usually clears the next day. There is no costly waiting time, as there is when you sell a property or even a business.

When you sell long-sales-cycle assets, then cash can become an invaluable negotiating tool, depending on the sales situation of the seller. Many people will tell you not to keep much money in cash because you will make no money on the cash (or at least very little). This is a shortsighted view. Having cash in a bank, in cash-value life insurance and even a safe deposit box is invaluable because you can access the money immediately without having to sell an asset at a loss.

A $200,000 House for $100,000 -- Today Only

Let's say you receive a call from your neighbor, who must sell his house immediately. You are familiar with the house and are very confident that it would sell for $200,000 on the open market given time. Your neighbor is pressed for time, due a new job, a new life or whatever. He tells you that he needs to close in three days, and if you can make that happen, he will sell the property to you for $100,000, which represents a 50 percent discount. (I have bought many properties at 20 to 50 percent discounts -- as have many people all over the country.) Could you make that happen if you received that call today? If you had the cash, you could write up a purchase agreement and send it to a title company with a rush close. You then wire your funds to the title company and sign some documents and presto you own a $200,000 house for $100,000, which means you have a $100,000 equity profit. Equity profit is not cash profit, but it is real wealth that you can convert back to cash if you so choose.

That money in the bank or your insurance policy -- earning .05 percent to 5 percent -- has the chance to close to double in 60 to 90 days when you resell the property. Any real estate investor will tell you that to convert that house back to cash will require some holding expenses, a little fix up and selling expenses. When the home resells, you might net $80,000 of profit. The original $100,000 of seed capital goes back into the bank or your cash value life insurance policy along with some interest that you should pay yourself for the loan. Now you are free to do as you wish with the $80,000. Depending on what funds you used to close on the property, you will probably owe short-term capital gains taxes. You could also choose to hold the property and possibly obtain a mortgage from a bank or private lender to pull back out much of your cash. Then you could rent, rent to own, or equity share that property and sell out later for hopefully more money and at a more beneficial tax rate.

Fast access to cash -- combined with some education on how to buy distressed assets -- can pay off handsomely. If you had all your money tied up in the market or fixed-income assets, then you could not take advantage of that unique opportunity that came knocking on your door.

Waiting for the Opportunity

That $100,000 of cash will buy every $100,000 or less asset on the market (property or business for sale) and it will buy most $110,000 assets, some $125,000 assets, a few $150,000 assets and the occasional $200,000 asset because you can solve problems quickly with that fast cash. Rates of return are not always figured out inside of the product you are in but rather what can you do with that cash when the right opportunity presents itself.

%VIRTUAL-article-sponsoredlinks%What if it took two years for that opportunity to present itself? Would it still be OK to keep that safe money parked and available at a low rate of return? Of course it would! Never make the mistake of thinking that all your money needs to be invested or in fixed-income assets such as bonds or annuities. Maybe you could educate yourself on how the distressed real estate and note markets work and spend a little time and effort on taking advantage of that market.

Cash parked in a safe, easy-access place would also allow you to take advantage of the next stock market downturn. If you had cash and guts in 2007 and '08 and decided to take that cash and invest in great companies that are way down due to more of the market than anything internal to the company, you would have made a killing. So when is the next market downturn? Nobody knows, but it is just a matter of time and those with cash and those who are willing to buy when blood is in the streets always create fortunes.

John Jamieson is the best selling author of "The Perpetual Wealth System." Follow him on Twitter and Facebook.

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Fast Access to Cash is Still King for Chance to Earn Big
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much? 
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.  
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back." 
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.    
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more. 
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt. 
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.
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