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Equity Lines of Credit - A Critical Cash Flow Management Tool


Earnest Hemingway was interviewed about his successes and his failures - including his ultimate bankruptcy after being such a successful writer. His response about how he became bankrupt... 'slowly at first, and then all at once.'


There is so much truth in this. Mistakes compound just like interest. People rarely become bankrupt overnight - but through a series of misunderstandings (poor financial literacy) and ultimately bankruptcy comes 'all at once' because a payment can't be made. In other words - cash and cash flow are critical to avoiding a worst outcome financially.


The heart keeps beating, until it doesn't - and that flow of blood is the currency of the body. Cash flow is the currency that makes our broader financial body work at the individual level, and at a societal level.


In 2008 during the GFC (Great Financial Crisis) we saw the flow of currency literally stop at times - as systems failed largely through fear induced mass psychosis. A 'herd mentality' can be very scary once it starts moving - it isn't easy to stop.


Coaching Tip: I believe everyone should have an equity line of credit in place to their maximum level available. Not to draw down on, but as a financial planning tool. It's there if you need it, and while it could be frozen or taken away - it is something that to bottom 80% of income earners (who have lots of real estate wealth) a way to ride out (and even take advantage) of opportunities that require cash liquidity. Maybe it's there to make a payment when you've lost a job, the house can pay for itself for a while - there are many who are only one payment away from an Earnest Hemingway moment.


Source: Federal Reserve Board - 12-31-2021


Look at cash available by income: The top 20% of all income earners in the US have $76,626 in cash available, while the bottom 20% are financial overdrawn as their carry ratio of monthly inflows to outflows is negative by $20. Those in the middle 60% have an average of $12,156 in total cash on hand... they are not very liquid.





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