It takes a lot of guts and determination to get through life — and it takes a lot of money, too. During our lives, we have to work hard and save carefully to afford big purchases such as vehicles and homes. We have to put away cash for retirement while paying insurance premiums to ensure that we aren’t bankrupted by disasters and that our family isn’t left penniless when we die. And as we establish ourselves and build our wealth, we’ll be putting more and more of that wealth into things — assets — that are illiquid.
When we say something is illiquid, we mean that it is tough to cash in quickly. A house is a classic example: It’s worth quite a bit of cash, but it’s not as if you can go to the store and buy a candy bar with your house.
This can be a problem. Money, after all, is only good if you can buy something with it. And if you suddenly need a lot of cash late in your career or in your life, you may find that the money you need is all tied up in the assets you own. So what can you do? Here are a few ways to turn your assets into cash.
Take out a secured loan
Loans create debt, but that doesn’t mean that all loans are unhealthy sources of toxic debt. Some loans can have excellent terms. The loans that are the healthiest are long-term secured loans.
A secured loan is a loan in which the borrower puts up something as collateral. If the borrower defaults on the loan, the lender can seize the collateral instead. That reduces risk for lenders, which encourages lower interest rates.
If you have valuable assets but little cash, you could consider taking out a loan against your home or another valuable asset. This will allow you to turn some of the value of that asset into cash. You’ll still pay interest, of course, but you can eventually pay off the loan and still keep the asset.
Get a viatical settlement
If you have been paying into a life insurance policy, then you have a nice chunk of change headed your way — that you won’t be around to enjoy. In most cases, that’s OK, because you took out the life insurance policy to help your family handle expenses when you die. But, sometimes, it becomes clear that you need that money now to keep your family financially secure. In these cases, a viatical settlement can be the right move.
So what is a viatical settlement? It’s sort of like a life insurance buyout. Essentially, a viatical settlement means selling your future life insurance payments for cash now. Naturally, you’ll pay a bit for the privilege, but this can still be a sound financial move in case you need cash quickly to keep things such as medical debts from ballooning and hurting your family’s finances in the long term.
Take out a reverse mortgage
For many of us, our most valuable asset is our home. It takes a lot of money to pay for a home, and it usually takes a mortgage loan that we pay off for years afterwards. When we finally own our home free and clear, we own a valuable asset.
Of course, we may have no intention of selling our home — in which case, our asset really isn’t doing too much for us. That’s where a reverse mortgage could help you. With a reverse mortgage, instead of paying for a home bit by bit, you’ll be getting cash regularly. Reverse mortgages are available to those 62 years and older, and the cash to repay the loan comes from the borrower’s estate (or the sale of their home) after they pass away. This allows the borrowers to create an income from their assets that will last the rest of their lives.