This is part four in a series on the Six Circles of Wealth.  The first three circles are Six Circles of Wealth, 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.
