For a commodity we use every day, many people really don’t know how money works. Traust Sollus represents extremely educated people, from surgeons to lawyers, political players, CEOs and scientists, but even people with multiple degrees don’t have a firm grasp on how money actually works. The easiest way to explain how it works in the real world is through a case study. Let’s take this couple I met back in the nineties, but didn’t represent. They had around 10 million dollars worth of real estate, from which they were receiving a dependable cash flow from rental agreements. They lived pretty simple lives and weren’t outlandish in their spending, but there was an unanticipated change in their local economy. All of a sudden there were vacancies in their buildings, which meant their cash flow suddenly shrank. Despite the fact that they owned their buildings outright, without debt, they were paying out of pocket for their real estate investments. The lack of rental income meant fees for maintenance, taxes, and other operational expenses were now coming out of their cash flow, which came at an unfortunate time as the couple was approaching retirement age.

Could this couple have made better financial choices to keep from affecting their retirement plan? Had they diversified their assets into other ventures other than real estate or ensured they had significant cash reserves for circumstances like this, they wouldn’t have been hit so hard. Like they say, hindsight is 20/20, but experts like financial advisors and wealth managers are paid to predict and watch situations similar to these. Experts close to the couple could have suggested they sell some of their real estate investments when the market was high to prevent this catastrophic hit.

Like so many Americans this couple believed owning real estate and not having debt meant they were financially successful and secure, however that’s not necessarily how money works. If you have wealth that is tied into holdings or buildings, it doesn’t always mean you’ll be financially independent and secure forever. By planning and having cash reserves on hand, you’ll be more prepared for the unexpected expenses that pop up.

For more information about how to plan for the unpredictable and learning how money works check out our book, Master Your Cash Flow® and be sure to visit tswealth.com.