Escaping The Winter of Poverty

One thing is certain for the few days every winter when the temperatures drop below freezing in Houston. Houston nearly shuts down: schools and offices close, stores shut their doors, roads may be blocked, and power might flicker or go out. The city stands still, longing for the freeze to break, like a weary traveler waiting for the first light of dawn. However, in Chicago, life is normal despite harsher winters with temperatures averaging 36°F lower than Houston and nearly 400 times more snowfall each year. Chicago’s experience with harsh winters means it has developed robust systems (e.g. snowplows, salt trucks, heated sidewalks and emergency systems) to handle the cold, making it thrive in winter, where Houston barely survives.

Two things are true about financial winter. It is inconvenient, and it will come. While many will thrive, others will fall victim into poverty. Similar to enduring the harsh winters of Chicago, escaping the winter of poverty requires thorough preparation and planning. To be adequately prepared for financial winter, it is essential to maintain both liquidity and solvency. Liquidity refers to the capacity to generate cash during challenging periods to cover living expenses. It is important to assess whether your assets are sufficiently liquid to withstand financial hardships. In parallel, solvency pertains to your ability to meet all debt obligations based on your available assets.  If your debt-to-income or asset ratio is high, you might be at risk. A quick test for liquidity and solvency is to assess how long you could live if you lost your job today. It is important to keep in mind that job loss is often unexpected and rarely occurs at a convenient time. To maintain adequate liquidity, maintain sufficient cash and short-term assets, and to improve solvency, keep your debts as low as possible. Don’t be deceived by your high and regular paychecks. Many have lost their jobs and have been frozen by financial winter overnight. Are you prepared to thrive or barely survive?

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