Liquidity, risk and optionality
Should I put my last cash into paying this off?
3 minute read
Liquidity is how fast you can turn something into usable money without taking a loss. Optionality is how many moves you still have available.
Paying a debt off with your last cash trades a guaranteed return (the interest you stop paying) for a loss of both. That can be the right trade — but only if the surprise fund still exists somewhere.
Risk in borrowing is mostly timing risk: the payment is fixed and certain, while the income and the value are not. Whatever survives a bad six months is your real plan.
Why this matters
Illiquid and technically solvent is how people with good net worth end up in bad situations.
What to do with this
- Before any payoff, decide what your floor cash number is and refuse to go below it.
- Ask what happens to this decision if income drops for six months.
Want this applied to your own numbers?
Ask CredABLE about this