Some of the more liquid assets include a checking account, a savings
account, a money market deposit account, and money market funds. The more funds are
maintained in these types of assets, the more liquidity a person will have to cover cash shortages.
Even if one has not sufficient liquid assets, one can cover a cash deficiency by obtaining
short-term financing (such as using a credit card). If adequate liquidity is maintained, one
will not need to borrow every time one needs money. In this way, a person can avoid major
financial problems and therefore be more likely to achieve financial goals.
Prevention of personal insolvency can be carried out by purchasing insurance. Property
and casualty insurance insure assets (such as car and home), health insurance covers health
expenses, and disability insurance provides financial support in case of disability. Life insurance
provides the family members or other named beneficiaries with financial support if they
lose their bread-winner. Thus, insurance protects against events that could reduce income
or wealth. Retirement planning ensures that one will have sufficient funds for the old-age
period. Key retirement planning decisions involve choosing a retirement plan, determining
how much to contribute, and allocating the contributions.
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