1. Building Financial Strength: Achieve High “Liquidity”
In finance, liquidity refers to the degree to which an asset can be bought or sold in a market without affecting its market price. When assessing a client’s financial strength, one aspect we always consider is the liquidity of banks and their ability to maintain cash flow for businesses. Essentially, this helps determine whether an entity has sufficient cash or equivalents to meet its financial commitments over a certain period, usually one month.
Suppose a bank doesn’t have enough cash reserves to fulfill its financial obligations, even for a month. In that case, it is deemed insolvent (or bankrupt). No matter how many millions the bank is projected to earn in subsequent months, if it doesn’t have enough cash for the current month, it will go bankrupt.
We should think about ourselves in a similar way. If you constantly indulge in shopping sprees, borrowing from one person to another, and when the time comes, you find your pockets burnt and empty – you are operating as a financially insolvent entity. Therefore, keeping your spending below your earned income is the primary goal to improve your financial health.
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2. Don’t Put All Your Eggs in One Basket
If a company’s operations depend too heavily on one person or group, the business faces a “key person” risk. A recent example is Gerald Cotten, the co-founder and CEO of Quadriga, a cryptocurrency platform, who suddenly and mysteriously passed away. Quadriga was once Canada’s largest crypto exchange, despite the dizzying fluctuations in this industry. Many of the cryptocurrencies managed by Quadriga did not need to be stored online. These accounts are called “cold wallets,” which provide better security for users.
The problem was that Quadriga claimed Cotten was the only one who could access these wallets. Consequently, after Cotten’s sudden passing, Quadriga went bankrupt, and thousands of investors and users lost their money because they did not anticipate the potential impact of “key person” risk.
Similarly, if you rely on a single source of income or depend on others to support you financially, you are undoubtedly facing a “key person” risk. That’s why diversifying your income is so important, even if you don’t have a second or third job, but rather build an additional financial foundation through investments. And remember, even if you have long-term financial support from someone else, you should still have your own income source.
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3. Be Patient and Find Your Own Path
Many people around me often look at bank employees and their salaries, then assume that if they were in that position, all their financial worries would be eased. However, I can tell you that even those bank employees say the same about people working in private equity and hedge funds. With each “level” achieved, you will aspire to reach the next “level,” and this desire can be hard to stop. Here, I’m not just talking about money but also about many other aspects of life.
But I’ve realized that, at the end of the day, having more money doesn’t necessarily mean you’ll manage it better, as many people think. In fact, having more money can lead to wasteful spending and give rise to more undesirable desires than you have at the present moment. In other words, along with the desire for more money, learn to manage what you already have well. So that when you do become wealthy and financially comfortable, you can master your money instead of letting it control you.
Bank stocks plummet after overnight financial report release on January 31st.
The banking stock group, which has been leading the market in the first weeks of the year, experienced a collective downturn today.
