Most people think of liquidity as the money you can access in an emergency. But at Foundation Family Wealth, we see it as something more nuanced. Liquidity runs through every life stage, every market cycle and every transition. It is the ingredient that keeps a financial plan intact when life inevitably shifts.
Liquidity is not a simple number, and not only for emergencies. It is a structure. And it is not merely cash. It is a balanced ecosystem of assets, each serving a purpose.
At Foundation Family Wealth, we use a framework called The Six Dimensions of Liquidity. When clients understand these dimensions, they make better decisions, avoid costly mistakes and move through life with more confidence and less fear.
1. Liquidity for safety: your emergency foundation
This is the starting point for everyone, regardless of life stage or wealth level. Emergency liquidity protects you from the unexpected, such as a job loss, a medical bill, a family crisis, or a significant home repair. The right amount depends on your income needs and how variable or predictable those needs are.
Where to keep it:
- In a bank account
- In money market accounts or funds
This money must be immediately available, or available at very short notice, and must carry no risk of capital loss. This is not money for investing. It is money for stability, safety and sleep-at-night confidence.
2. Liquidity for short-term needs: The 1 to 2 year horizon
The second layer of liquidity is for known expenses over the next one to two years, such as school fees, tax bills, home renovations, planned transitions, or property deposits. Because the time horizon is fixed, you want solutions that balance certainty with higher returns.
Suitable options:
- fixed deposits
- fixed-interest instruments
- carefully selected income funds
Income fund managers combine shorter-dated instruments with longer-dated ones that offer higher yields. By managing exposure across the interest rate cycle, they can deliver better returns than cash.
Not all income funds are equal, though; some are designed for capital stability, while others chase higher yields and can lose capital. Matching the certainty of the need with the certainty of the return is essential.
3. Liquidity within your investment portfolio
Once safety and short-term needs are covered, the next dimension relates to the liquidity of your long-term investment portfolio. Even growth assets require a balance between accessibility and long-term commitment.
Accessible investments include:
- listed shares
- unit trusts
- exchange-traded funds
Local investments generally settle within a week of withdrawal. However, long-term portfolios experience market cycles, including downturns, and you may not always be able to withdraw at the level you want. It is usually best to draw from these investments as part of a planned, periodic income strategy.
Illiquid structures include:
- structured products
- pension, provident and retirement annuity funds
Retirement funds are deliberately inaccessible, and this restricted access, together with their tax advantages, is what helps people save successfully. They are designed to provide income during the withdrawal phase after retirement.
At retirement, you have a once-off opportunity to withdraw a portion of your savings. Taking some liquidity can help fund significant, infrequent expenses such as holidays, car replacements or medical procedures. The bulk of retirement capital, however, should remain intact to support future income. The art lies in balancing access, future income, and long-term tax efficiency.
4. Global investments and liquidity constraints
Global investments may take longer to access because of currency conversion timelines and international transfer processes. Many offshore portfolios are also structured as endowments, which come with specific rules around access.
Two global considerations:
- Currency volatility can significantly affect the value you receive.
- Saving offshore for a known rand-based need is seldom advisable.
Always match the investment currency to the future expense currency. Global investments are not ideal for monthly withdrawals but are well-suited for replenishing local portfolios or funding expenses in foreign currencies, such as travel or overseas education.
5. Property and its hidden liquidity demands
Property is often misunderstood as a source of liquidity. Many people assume they can sell a property if they need cash, but property is one of the most complex assets to convert quickly.
Your ability to sell depends on the property market, economic conditions, interest rates, buyer demand and realistic pricing. Even in strong markets, selling takes time. In weak markets, it may take months or even years, sometimes requiring significant discounts.
Property also consumes liquidity. People often underestimate the cash required to move into a home, renovate, complete repairs, make a property sale-ready, handle cosmetic updates, or pay compliance and clearance costs. Property can be an excellent long-term investment, but it should not form part of your liquidity strategy.
More often than not, you need liquidity because you own property, not from your property.
6. Collectables, art and alternative assets
This final dimension includes assets such as art, rare collections, jewellery and classic cars. While these may have value or personal meaning, they are usually the least reliable sources of liquidity.
They can be challenging to value, slow to sell, dependent on specialist markets, vulnerable to economic cycles and often sold at discounts under pressure. These assets can diversify your wealth or enrich your life, but they should never be relied upon for immediate or short-term liquidity needs.
Special attention is needed for some times and considerations:
Liquidity and debt: finding the smart balance
Some clients hold large cash balances for comfort while also carrying expensive debt. Although this may feel safe psychologically, it is often inefficient. Effective liquidity management requires analysing the entire balance sheet and assessing whether reducing debt offers more long-term value than retaining additional cash.
Liquidity during life transitions
Liquidity needs shift significantly during significant life transitions such as divorce, the death of a spouse, retrenchment or retirement. These events are emotionally and financially demanding, and it is natural to want to hold more cash on hand because it feels safer.
However, holding too much liquidity for too long can weaken your financial plan. It can result in lower long-term growth, higher taxes, disrupted retirement or estate planning and missed opportunities.
It is wise to increase liquidity during transitions, but equally essential to reallocate excess cash once stability returns. The goal is not maximum liquidity, but the right liquidity for the right moment.
Liquidity for estate planning
Liquidity is also essential in estate planning. When someone dies, their bank accounts are frozen and access to assets is restricted until the estate is formally wound up. This can take months or longer.
During this period, dependants still need funds for daily living, school fees, medical costs and home maintenance.
Executors also require liquidity to settle taxes, debts and fees. Without accessible funds, families may face unnecessary stress or be forced to sell assets under pressure.
Ensuring sufficient liquidity outside the estate protects loved ones at a vulnerable time and should be part of every financial plan.
Liquidity for business owners
For entrepreneurs, liquidity is vital. Many business owners have most of their wealth tied up in their companies or in property. Liquidity is essential for absorbing delayed payments, smoothing cash flow cycles, and handling unexpected expenses.
Business owners often view their businesses as extensions of themselves, which makes personal liquidity even more critical. When things go wrong in the business, you want financial space at home. Adequate personal liquidity protects family finances and supports long-term planning.
Liquidity supports both your plan and your peace of mind
Liquidity must also be managed with tax efficiency in mind. Interest income is taxed at marginal rates. Large cash balances held over long periods can increase tax obligations and erode returns. Even the most carefully designed tax plan can be undermined by unnecessary interest income. Liquidity, therefore, needs to be balanced thoughtfully to avoid tax drag.
Liquidity is not simply cash. It is a dynamic structure that protects you, empowers you and allows you to move through life’s transitions with confidence. The Six Dimensions of Liquidity help you understand what type of liquidity you need, when you need it and how to structure it without compromising long-term growth or tax efficiency.
When balanced wisely, liquidity becomes a strong anchor in your financial life. It protects your long-term plan, provides emotional reassurance and supports your freedom to make choices aligned with your values.
At Foundation Family Wealth, we help clients build liquidity not only for emergencies, but for opportunity, resilience and the unfolding journey of life. Get in touch with us if you would like advice on your financial planning, liquidity, and estate planning.
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