In 1967, a Texas lawyer named Herb Kelleher used a cocktail napkin to sketch out his plan for a new company called Southwest Airlines that would provide cheap flights connecting Dallas, San Antonio, and Houston. At the bottom of the napkin, he wrote one simple sentence…
“A plane on the ground makes no money.”
So before the company even got off the ground (so to speak), he’d already recognized a very important concept: if your assets are just sitting around collecting dust, they’re worthless.
Southwest started out with three planes. The company lost money for two years (because they didn’t have enough demand to keep three planes in the air all the time), so Kelleher sold a plane to get them down to just two. By its third year, Southwest was turning a profit—an unheard of accomplishment in the aviation industry.
Another important component of Southwest becoming profitable was their mastery of baggage handling. The quicker you can get luggage on and off planes, the quicker you can get the plane back in the air. And if that allows you to squeeze in another flight or two each day, that extra flight or two can represent a lot of additional profit.
A lot of folks need to learn the same lesson with their personal assets. I see a lot of people who have their planes on the ground. A few examples…
- Money that’s just sitting in a bank account (and in many cases, growing by the month as you continue to spend less than you bring in) isn’t helping you. You need to have enough for an emergency fund (3-6 months’ expenses) and enough to cover any known major expenses that will be coming up in the next 12 months. Over and above that, any money sitting in cash without a purpose is losing money for you. And no, you don’t need $75,000 for an “emergency.” How many $75,000 emergencies have you ever heard of? By the way, this same concept can apply to business owners who keep way too much money in the business bank account.
- Overly conservative investments in retirement accounts (especially if you’re more than 10 years from retirement) aren’t doing you any favors. A lot of people end up being too conservative in their 401K, IRA or Roth, simply because they’re uneasy about the immediate future of the stock market. But if you’re not retiring anytime soon, the stock market’s immediate future is probably going to be largely irrelevant to you.
- For empty nesters whose kids have moved on, the house might be a plane on the ground. Suppose you raised the kids in a 5-bedroom house in a great school district, and it’s now worth $750,000. But you no longer need the great school district or the five bedrooms, which means you’re heating, cooling, maintaining and cleaning a lot of space that you don’t need and paying a lot in property taxes for that school district. Not to mention all of the equity that’s trapped in the house that could be working for you some other way if you sold and downsized to a house that you buy for $450,000.