Hi Professor Savings here,
What is liquidity?
In simple terms, liquidity is how long and at what cost does it take to covert a certain investment into cash.
Sometimes we may need cash for a new investment property or simply because of a certain emergency.
Let’s say Ray needs to send his dog Romeo to the veterinarian but he needs some cash to pay for the visit.
Luckily, Ray has some stocks in his portfolio. Hops on his tablet, sells some stocks, and then get cash sent to his banking account.
However, let’s say that Ray only has real estate investment, this would take a longer period of time. He would need to find a realtor and then sell the house.
There are also what we call selling costs.
This includes agent commissions, fix up expenses, plus closing costs as well.
Add this all up and this may be about 8% to 10% of the total cost of selling the house.
So we advise you keep a rainy day fund. We advise you save about 6 months of monthly income.
Thanks again for joining us and make sure you subscribe to our Professor Savings channel.
Note: for our future videos we have improve our sound quality with a professional mic and pop filter. Thanks