High Net Worth Doesn't Always Translate Into Financial Flexibility
Many Australians are asset-rich but cashflow constrained. Here is why that matters, and what to do about it.
Australia is by most measures a wealthy country. So why don't so many of us feel wealthy?
Household net worth has risen steadily over decades, underpinned by a long property boom, compulsory superannuation and relatively stable economic conditions. Many Australians are sitting on substantial balance sheets. More of us are millionaires than ever before.
So why don't we feel wealthy? More of us are also under financial stress. We have money, but we don't feel like we have enough.
Part of the issue is that much of Australian wealth is illiquid, concentrated and structurally constrained. It looks impressive in aggregate but often fails to deliver what matters most for peace of mind: flexibility, resilience and usable income. We are less financially secure than we appear.
We have a lot of wealth that can't be used
The issue is not the level of wealth, but its composition. For most Australians, net worth is dominated by two assets: the family home and superannuation. Both come with constraints.
The family home is illiquid. It does not generate income unless you are willing to downsize, borrow against it or sell. Superannuation is a great tax-effective vehicle to save for retirement, however it is inaccessible until your preservation age and subject to regulatory limits at some ages.
A large portion of Australian wealth is locked away, physically or due to legislation. As a result, many of us are asset-rich but cashflow constrained.
This is not just a theoretical discussion. How people feel about their financial position shapes decisions around retirement, lifestyle and risk.
The limited options without liquidity
The concentration in property and superannuation leads to a lack of liquidity. Liquid assets such as listed equities, fixed income and cash provide flexibility, income generation, and the ability to respond to changing circumstances.
Without liquidity, Australians have a limited range of outcomes: sell property or hold it, and draw down super or wait, but only in retirement. Retirees also have the option of a reverse mortgage, to live in their home but draw down their equity.
A mortgage on a property also has a significant impact on cashflow. The asset may be growing in value on paper, but that does not reduce the present-day loan obligations and the reduced liquidity that comes with it.
Moving beyond net worth
This is not an unsolvable problem. It is not about selling the property or reducing any voluntary contributions you are making to superannuation. You do not need to move away from the assets that you have.
It is about ensuring that you have enough liquidity to bring you peace of mind and to offer breathing room if circumstances change. It is about ensuring there is a balance between growing wealth and ensuring there is adequate cashflow.
The ideal financial position is a balance between long-term wealth accumulation and short-term financial resilience.
What an effective portfolio actually looks like
The ideal situation is getting into a financial position that:
- Provides accessible liquidity. Funds that can be drawn on without major structural changes.
- Maintains growth exposure. To ensure wealth continues to compound over time and protects against inflation.
- Reduces concentration risk. By diversifying beyond property and domestic assets.
- Gives you choice. Allowing you to make decisions based on preference, not constraint.
It is about increasing your usable wealth.
Final thoughts
You may have a good salary and increasing wealth while struggling to understand why you still don't feel comfortable. This is an underappreciated benefit of liquidity. It provides comfort, flexibility and choice.
Liquidity means your life stops being a waiting game to pay off your mortgage and access your superannuation to feel financial security. It gives you options: retire early, travel, or leave your job if it is not serving you. We are told to focus on the long term with our investments and our financial plan. This does not mean that short-term resilience does not matter. Start measuring the success of your portfolio through both measures.
