[ChuckMcM]

I wish I could double raise this.

When raising our kids we often talked about money and "kinds" of money. When you're young you can go for long stretches with "no" money, as you get older you get introduced to the notion of a "cash flow" and a steady stream of expenses that need to be paid.

The single biggest point we try to impress on them was that if you were not able to 'save' (put aside) some money every month (could be $10 but it had to be net positive) such that under 'normal' circumstances you've put money aside in more months than not in a year, then you are, by definition "living beyond your means."

If you found yourself in that space you needed to scale back your life if you could, or upgrade your means.

Being able to come up with $2,000, "if you had to", is pretty important. And while its perfectly ok to say you have to liquidate your savings or sell an asset.

Acquiring it through a credit instrument didn't pass the test, since you just moved the obligation forward in time, and if you couldn't come up with it now then why do you think you can come up with even more later?

It used to bother me a bit when peers whom I knew were making about the same amount of money as I was were living much more "exciting" lifestyles, and it really wasn't until the 90-91 recession hit that it was clear that they were living on credit. One person called me in desperation for a ride to work because their car had been 'stolen.' It turned out it had actually been re-possesed. Thats a hard place to be.

[meric]

>>Acquiring it through a credit instrument didn't pass the test, since you just moved the obligation forward in time, and if you couldn't come up with it now then why do you think you can come up with even more later?

What about stocks? I need three days for a sale of stocks to settle and take the money out. If I have an emergency I can use my credit card. (and pay it back at the end of the month).

[2arrs2ells]

Stock (plus a credit card while you wait for settlement) is certainly fine, but be careful...

The times that you are more likely to need liquidity (loss of job, economic crisis) are also the times that the stock market is likely to be incredibly low.

You might end up like many hedge funds who (as a result of some toxic assets) ended up having to sell good assets at firesale prices during the recent recession.

[hugh3]

True, but on the other hand, with US-dollar interest rates being what they are at the moment, the alternative to keeping your money in shares (or a similar volatile liquid investment) is keeping it your savings account at 1% or less. I keep a few grand in cash, but everything else goes in the sharemarket.

[ChuckMcM]

Stock absolutely counts, but it has an interesting caveat. If you read the article they included the caveat "...within 30 days." Which covers the 'you pay it now with a credit card and you pay it off when the CC bill arrives' scenario.

Back in the 80's when I was trying to buy a house, part of the down payment was going to be funded by the sale of stock (I had worked for Intel and had vested a few shares). How much of the down payment was flipping all over the map as Intel's price went up and down and up and down. On the one hand I wanted to hold it as long as possible (the trend was upward) but I didn't want to get caught in a dip either. My wife and I picked a number we felt was "reasonable" and put that in as a 'limit' order. When that fired, we picked the best choice of the three houses we had as candidates and made an offer on the house.

The stock was up an additional 5% by the time we closed but had been down at least 5% between the sale and the close. Very stressful if we had been under contract and the price was falling.

Flash forward to the dot-com days, a good friend bought a house beyond their means and was making payments by selling stock. When the bubble popped they had to sell the house. Not ideal but it didn't leave them permanently stuck.