Air Money

Peter posted this on April 24, 2020

Forbes regularly publishes a  list of world billionaires.

The Net worth used for this ranking is usually a combination of stock held in companies as well as their assets such as real estate, etc.

This leads to giving people a net worth of maybe $40 billion & leading the majority to believe they have the entire cash sitting in a Bank account or vault somewhere.

Sadly, that’s not the case.

A person with a reported $40 billion net worth might find it difficult coughing up $1m for an emergency and there are reasons for this.

Net worth is mostly Air Money (as I call it) or Illiquid or Fixed Assets.

Business is simply deploying capital to an opportunity and waiting for returns (or losing the capital)/

If you have a Business returning 30% or more on your capital annually, it would be crazy leaving your cash in the bank for 1% interest.

This is why for many properly run businesses, a lot of cash is tied up in inventory and other assets and rarely available to spend.

I for instance have been on a salary for the past 5 years (I’m not even the highest paid) while receiving dividends at the year end when we make a profit.

This means if we get a $1m contract, I probably won’t have access to a cent of the profit from it till the year is over and accounts settled.

The money belongs to the company (as well as the car I drive and a lot of other things).

Most of the money you feel a Business person should have to waste is just Air Money.

We’d only see it when we sell the Business.

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