This newsletter's focus is the need for liquid cash in light of the new economic normal.

There are two reasons to use a stash of liquid cash: something good happens or something bad happens.

Good things that require cash:

• Your child is accepted to a terrific (but more expensive than planned) school
• You have an opportunity to invest in a vehicle that will enable you to reach the Financial Freedom Point
• You start your own business
• Your dream job pays less than you currently earn

Bad things that require cash:

• Job loss or falling income
• Medical procedures
• An elderly parent in failing health
• Home repairs necessary to sell the house

A recent Urban Institute study on workers aged 45-79 is troubling:

• Average wages for retirees from long-term jobs (with more than 10 years of service) who continued to work declined by about 39 percent
• Median wages plunged by 53 percent 
• Older people displaced from long-term jobs who found other employment experienced average wage losses of about 19 percent

You can stick your head in the sand or take proactive measures. I'm here to help you with the latter.

This month a couple with $500,000 equity in their home couldn't pull out a dime. How'd this happen?

First, they didn't really have $500,000. We figured their equity had fallen to about $400,000 thanks to the depressed values of comparable homes in their area.

Second, and most tragically, they didn't have the necessary credit score -- a $400 medical expense went into collections. Poof! Credit score down 150 points.

This couple played "by the rules" of conventional mortgage thinking. They stored most of their savings in the walls of their house. Problem is, home equity is just a number until the mortgage is paid in full. It's not liquid and it's not fully yours.

If this couple had followed the "Start With the House" philosophy they'd have built an emergency moat of cash of at least $10,000. Then they would have invested their savings in a vehicle that would have enabled them to pay off the balance of their mortgage with the stoke of a pen. This is called the "Financial Freedom Point, " and until you reach it, remind yourself that your home equity is just a number, not a reality.

If you haven't yet downloaded a free copy of my mortgage planning guide, please do. This recession is a time to re-evaluate all conventional thinking.

People often ask how to balance their savings between "liquid" cash, paying off bills, pre-paying for college and paying down the mortgage. If the Great Recession has demonstrated anything, it's that home equity is a poor choice. I've written at some length on this on my blog.

$10,000 is more than just a round number. It's a minimum. The Bureau of Labor Statistics reported that 44% of unemployed persons were out of work for 27 weeks or more.

With a $1000 mortgage payment and the need to eat and pay utilities, could you go half a year without a pay check without wiping out your savings? A consultation with a financial professional is the best way to determine your own needs. 

Don't have a trusted advisor? Give me a call -- I've worked with many of the brightest people in the business.