The cash and cash equivalents – this group of assets consist of any cash held and any asset that can be converted quickly into cash without loss of value. It would include money in the bank and money market accounts. It is important to ensure that you maintain some money in this category of assets because this is what you can use in case of an emergency. The general recommendation is that one should have enough Money to pay for between three to six month's living expenses.
The more income streams you have, the less you need as an emergency fund. On the other hand, if your income is not regular and dependable, you should have more money available for emergencies such as job loss, car breakdown, extended family issues such as deaths or illnesses and so on. No matter how well organized your life is, unexpected things will happen and if you do not put money aside for such emergencies, each of these events will be a stress-inducing occurrence that will send you borrowing from every corner. What more, you may be forced to liquidate other assets at throw-away prices to solve any pressing problem that may arise.
The invested assets – most important group of assets as far as your financial security is concerned. These include stocks, unit trust funds, cooperative society shares, your retirement scheme balance, the surrender value of any life insurance policies including education policies, undeveloped land bought for investment purposes, rental properties, any business interests you may have and so on. This group of assets is important because it is here that you can get money to buy your house, educate your children and most importantly, money to take care of yourself when you eventually retire. Without investments, you will find it difficult to achieve these important goals. Besides, you never know when your boss will say enough is enough, you are fired! and replaces you mercilessly the following day. What will you do at such circumstances, hah! It is extremely important to keep accumulating invested assets during your working years. Balance quantity and quality of your invested assets to ensure a secure financial life. Too many people accumulate investments without regard to their investment objective and risk tolerance and end up unable to meet their objectives.
The personal use assets category – this category needs careful consideration. It is important to own your own home because it is the only personal use asset that increases in value. Some people kind of believe that if they have big screen tvs, drive expensive cars, rent big well varnished house, and live up to the rich and famous standards is what makes them real people. I would wish that you live up in your own house, in that case it is a wise investment. Other personal use assets such as cars, furniture, and electronics are all very nice to have but do not guarantee you a financial security. Instead what you do is spend, spend and spend on them trying to live up to their standards especially when they lose their value or depreciate.It is a serious but very common mistake to keep accumulating such personal use assets instead of investing. These personal use assets depreciate, increase your expenditure and finally have to be replaced. Get to know your priorities and the question of investing your money and how you should go about it will not be an issue.
Your assets are one half of the equation of your wealth and understanding the impact of each type of asset to your financial circumstances and future is important. With such knowledge, you can then make informed decisions about how and where you spend your money. List down your assets in the appropriate category today and begin the walk towards financial freedom.
Poly Muthumbi is a Web Administrator and Has Been Researching and Reporting on Debt for Years. For More Information on FINANCIAL BELIEFS, Visit Her Site at INVESTING YOUR MONEY