12 Step Liquidity Planning Checklist

Liquidity planning is about making sure you have the cash you need when needed. Whether you need to meet essential every day expenses, cover an unexpected event, surprise medical bills or take advantage of opportunities. We introduce the 12 step liquidity plan checklist to help you launch off in the right direction.

Know Where ALL Your Money Derives From

First question to ask yourself is: do you have access to enough reserves? Knowing all your sources of income is vital. Whether it may be a monthly salary, pension giving you a regular stream of income, dividends, seller discretionary earnings from your business, cashflow from real estate assets which may include an Airbnb. Put together a full list of all your income streams.

Liquidity Planning

Understand the liquidity of each asset

The next step is to categorize the liquidity of each income stream, which we can list as assets. For each asset, assess the process, ease and cost of liquidating it. Can it be liquidated only 24/7 or does it require a co-signatory at the bank required? Check which assets can be used as collateral to efficiently and cost-effectively borrow liquidity and what are liquidity needs and the steps to make this happen. This is especially important to have as a paper guide stored with your family members, in the case of a liquidity or inheritance event takes place. Not to mention to list your Asset Managers information along with the Custodian names and accounts and whether there are existing LTV also known as loan to value on securities held in those accounts. Which most likely you will need to satisfy before liquidating fully.

Be wary of your spending needs

Let’s start to consider your spending needs. Think long-term and account for the following:
Education: whether for yourself and or your spouse and or your children, including tuition break downs, cost to service
Renovations: on your primary or investment properties
Travel: whether you intend to travel abroad for a short or long period of time
Medical: any health issues that seek regular medical attention and how to allocate appointment cost visits and potential surgical bills
Market volatility: what is the % allocated to the stock market, whether weekly, monthly, quarterly and if in the event a stock market downturn exists, is there enough cash to support margin call OR not heavily rely on dividends generated from portfolios
Real Estate: assess any properties not cash-flowing and require contribution from personal savings

This is where a liquidity plan comes in. Liquidity planning visualizes income and spending streams over a period of time. It allows you to identify surplus liquidity for savings or investment purposes or income gaps requiring coverage from liquidity reserves.

Your Essential Liquidity Requirements

It helps to think of liquidity as having three categories:
Essential liquidity
Precautionary Liquidity
Discretionary Liquidity

Now that you have a better idea of your essential liquidity needs, there are those that cover:

Basic living expenses: rent or mortgage payments
Insurance: life & health, commercial, key man, K&R and for auto
Food: groceries and entertainment
Transport: how many cars, gas or electric
Clothing: allocation to clothing on a monthly basis

You need immediate access to this cash at negligible cost

Create a Precautionary Liquidity Plan

Unexpected events and situations do occur and should not be ignored. Planning for such precautionary liquidity is a necessity and this cash will help you in case of:
Unexpected job loss: whether you are residing and working in Switzerland, then Chomage will cover you for a period of time until you find a job. Insurance for these types of situations are important as well
Medical bills: as mentioned earlier, depending on your health condition this could be a sensitive dent to your savings unless you have both insurance and reserves to cover them
Death of a loved one: this sad unexpected situation occurs and being prepared for such an event has to be in place

How To Access Discretionary Liquidity

In addition to being a risk management tool, effective liquidity planning should enable you to take advantage of great opportunities, such as real estate, domains, websites, ecommerce, stocks and more. This is the role of discretionary liquidity. Smooth and timely access to these assets means you may be able to seize opportunities you just don’t want to miss.

Plan Accurately

Accurate planning minimizes the risk of having to liquidate assets at unfavorable market conditions or with a high cost penalty. Consider long term financial goals or projects with liquidity needs, including:

Gifting of money to children

Such detailed planning will help you determine the discretionary liquidity you possess.

Balance your asset allocation and risk profile

Alas you have put together a wealth overview and assessed your liquidity needs. Next step is to find the right approach to asset allocation, with the optimal situation being to manage your assets so that they generate additional income. If you did liquidity planning well, you will be in a better position to determine your risk appetite and know the amount and type of risk you can afford to take. Ensuring your asset allocation and risk profile are in balance is a key step towards financial stability.

Join A Family Office Circle

Family Office Circles exist and in their truest nature are not Banks and or companies portraying otherwise. Joining a Circle can help with networking amongst building relationships in the situation as you. This is great for exploring tried and true investment opportunities from entrepreneurs in the same position as you. Of course this is useful alongside inputting your tax advisor and external asset manager.

Internal Family Meetings

We believe that all families should have open dialogue amongst its members on the way liquidity is generated, saved and distributed. The more openness amongst family members should help the family move forward with the necessities needed to plan for the future.

Reality Check

Why is liquidity planning crucial? Many people face economic uncertainty and financial pressure. It is always a smart idea to re-assess the security and stability of your income streams. Review spending if your income has changed. Follow these set of questions:

Are all direct debits, standing orders and regular monthly outgoing still essential?
Many European companies reducing or cancelling dividend payments, will this jeopardize any assets you rely on?
With the crypto market gone to shambles, have you invested into NFTs and other Cryptocurrencies that have bottomed out and no longer providing payments to you?

It is timely reminder to diversify your portfolio by geography as well as asset class. For those that may need extra funds, consider temporary financing sources such as Lombard loans or liquid assets. Cash flow is king.

Keep Calm

Effective liquidity planning can stop unexpected and challenging situations from being emotionally overwhelming. Planning for both best and worst case scenarios.