Asset rich, cash poor? Make it work for you

Asset Rich Cash Poor J Finance

Many of us invest our money in houses, material goods and cars, so while we are asset rich, we don’t have ready cash, so it’s wise to keep on top of the situation…

What does asset rich but cash poor mean?

For many of us, the idea of having several hundred thousand pounds in the bank might be a pipe dream, but as homeowners, especially in the South East, plenty of us are actually sitting on that pile of cash without really registering it. Or maybe that should be ‘sitting in’ – we’re talking about our homes.

Unless you’re a business magnate, your home is the most expensive thing you’re likely to ever own. And in a society where investing in property has been a far more reliable way to earn interest than savings accounts, many people who bought their homes some time ago have already ‘made’ several hundred thousand pounds. In fact, recent figures show that the UK’s over 65s are sitting on £1.2 trillion of property wealth!

So if you are in your 50s and 60s and started buying houses when prices were far lower, you will have a considerable asset. What you may not have though, is a big enough pension pot to fund your retirement – your money may have been needed to fund a large mortgage or to keep the family financially secure while one of you took time out to raise children. Or it may have been used to buy cars or other material goods, whether it be expensive watches or jewellery for you and your partner or expensive items for your house.

The sandwich generation

You might also be part of what is called the sandwich generation. With women having babies later in life, and people living longer, this generation have responsibilities for children (even if they are in higher education) as well as elderly parents.

Funding a young adult through university and helping parents with care costs can take a serious toll on your finances. At a time when you might be thinking about stepping back, retiring or perhaps going part time, you could find yourself working more than ever to meet all the demands on your finances.

You could investigate releasing some of the funds from your biggest asset to help get a child on the property ladder, or make it easier for you to sit back and start enjoying some well-earned leisure time.

Releasing assets

There are two main things you could consider if you need to release some of your higher priced assets, other than selling the car that is:

  • Downsizing: With your nest empty, do you still need that big family home? Would you like a smaller house to look after? Or maybe you might move to another area – if you have been tied to an expensive area because of schools and access to commuter trains, you might now be able to look further afield and get more for less money. This is a simple way to release some of the equity in your home. Things to consider about this are how far you might move away from friends and family, space for visiting children and grandchildren, moving costs and fees such as stamp duty. You might like to take a look at our article: The true cost of buying a home for some help with this.
  • Equity release This allows you to continue living in your home, while enjoying some of the equity in it – whether that’s to fund your own retirement or to help a child with a deposit for their own property. Usually, any funds released are reclaimed after your death when the property is sold. Obviously if you have dreams of leaving your family home to your own child so they can bring up their children there, this may not be the route for you. However, there are two different kinds of release schemes – a lifetime mortgage and home reversion – find out more here.

Planning ahead

Something else we recommend is cashflow forecasting and planning. You may be thinking that this is something for businesses, but there is no reason why the same principles can’t be applied to your personal finances.

The idea behind cashflow projection is to understand how much you’re spending, in order to plan how much money you actually need now and in the future. You can do this monthly by taking into account your salary and bills.

But it is also possible to do this for a longer period, by looking at how and where you might release cash from assets to cover longer term ‘bills’ such as university fees, care fees and so on.

Having a good cashflow forecast will enable you to plan ahead far more effectively, and will highlight any potential issues, so that you’re not caught out in the future when you need cash rather than assets.

A financial adviser can help you with this as well as all the other points we have discussed.

If you would like to discuss equity release, financial planning, cashflow planning or any other financial matter, J Finance, which is a member of the Equity Release Council, will be happy to help. Please contact us without obligation.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk.