Thursday, April 7, 2011

Liquidity of Time

As I'm about to graduate with my MAcc in two weeks, I have often thought about what I have learned over the past five years. Undoubtedly I feel a tinge of embarrassment when I reflect upon all the information I once knew before entering the testing center and have now willingly placed from my mind. However, something we learned about last semester has, in a way, completely changed my life...

The matter of liquidity.
Liquidity can also be used to describe the ability of an asset to be converted to cash in order to meet current, necessary, financing obligations. For example, an airplane ticket may be worth $150, but you couldn't trade your plane ticket for a gorgeous pair of $150 shoes...even though their worth is equivalent. A plane ticket is a pretty illiquid asset.

A professor once asked us in class...Who is wealthier? Me or you? To which, of course, we responded "YOU!" "Not true," he responded, "You have more wealth than just haven't received your paychecks yet. I have earned my wealth and spent it already. You have more wealth...but you just haven't converted your college degrees into careers yet...think of what they will be worth to you in life! What you actually have is a liquidity problem."

I thought about this for the rest of the day. Not only do I have a liquidity issue in terms of my finances...but time is the most illiquid of all assets. I cannot 'cash out' on time in the future, until that day comes. Days are like annuities in that they are like time payments made to us consistently, and in the same amount.

When prioritizing in is so easy for us to get things confused. But what happens, for example, when you have children? They're only little for a few years...and only in those specified years. You cannot access that time asset later, or earlier. You only have it when you have it.

I remembered laughing when I watched the movie "Wall Street II" and it said, "Time is the most valuable asset". Well it's also the most access it appropriately.