In the Internet age, it’s easy for everyone to have a voice, but only a few people have figured out how to get paid for speaking. Those brilliant postings on politics, incisive critiques of entertainment, passionate rants about your favorite sports teams, or hilarious links to stupid human tricks may be great outlets for your creativity, but how much time can you devote to these activities if you’re not getting paid?

This process of converting something (in this case, one’s blog content) into money is called monetization. Monetization strategies are an essential part of financial decision-making for both businesses and individuals because monetization makes valuable assets spendable. The writer of Ecclesiastes stated that “money answers all things,” because even ancient societies understood that money has a superlative advantage over all other assets because it could be used to buy almost anything. Thus, anytime value is created, a follow-up question almost immediately follows:  “Can we monetize it?”

Monetization can be accomplished in an almost infinite number of ways, but all monetization is a variation on two basic transactions: selling or borrowing. Several examples:

• An individual monetizes his time and abilities by selling them to an employer
  or customer.
• A property owner could monetize a property by charging a fee for a parking space.
• Businesses can monetize their value by selling bonds to provide cash for new opportunities.
• A shareholder monetizes her investment when she sells her stock certificates.
• A homeowner monetizes a residence by taking a home equity loan.

More creative instances of monetization might be: a recording artist recycling previously released material as a “greatest hits” album, or railroad companies selling their right-of-way privileges to fiber optic cable companies. (In regard to Internet blogs, there are a surprising number of ways to monetize a website venture, including charging members a fee for content or services, establishing a referral/partner network, selling e-mail lists and attracting advertisers.)

Consequences of Non-Monetized Assets
The concept of monetization is simple, and this simplicity may lead us to overlook its importance. But when we have valuable assets that are not monetized, we begin to see how crucial monetization is to financial success. For example, retirement – the most prominent issue for many Americans – is really a monetization issue: i.e., “How do I turn the assets I have into an ongoing income?”  Consider the following instances where non-monetized assets may severely impact one’s financial options:

The Non-Monetized Business Owner
A business owner has invested a lifetime of work to develop a going concern to provide wealth and security for his family. Suppose that in addition to delivering a high six-figure annual income, the business owns real assets such as land, buildings, equipment, and licenses valued at $5 million.

As age 70 approaches, the business owner realizes he may not want to continue working, or that his declining health may not allow him to. Yet, if he simply stops working tomorrow and closes the business, what happens to all the value he has created? The annual income stops, and although he still owns the real assets, they aren’t money – they aren’t liquid, they can’t be spent. It might be possible to sell the business assets piecemeal, but the money received will probably be far less than the value of the assets if the business were still in operation. If the owner doesn’t find a way to profitably monetize his business, he may be forced to continue working, or forfeit much of the material value he has developed.

The Non-Monetized Homeowner
Thirty years ago, a couple found a great deal on a beach house in an exclusive area. Over the years, the property has been a sanctuary and gathering place for the couple, their children and grandchildren, a place of great times and wonderful memories. Even with the recent downturn in home prices, the beach home is valued far in excess of the initial purchase price. It is a prized family asset.

But Mom and Dad are looking to retire, and while the beach house looks great on their balance sheet, the couple’s primary concern is income. The children would like to keep the property in the family, but don’t have the ability to monetize the house (i.e., buy it from the parents), so the prized family asset may have to be sold.

The Non-Monetized Accumulation Plan
Over her working lifetime, a book editor has acquired some interesting assets: The rights to a percentage of ongoing royalties from the works of several authors, as well as stock ownership in a privately held publishing company. While both of these assets provide a modest income stream (from book sales and dividends), the editor wants to relocate and needs a large down payment to invest in a condo development.

Because of the unique nature of these assets, the editor’s assets cannot be easily liquidated like a publicly traded stock, bond or mutual fund. Even though they may have a history of profitability and provide some steady income, she faces a challenge in monetizing them for their total value.

Optimal Retirement Planning: Coordinated Selling and Borrowing
As you can see, non-monetized assets can be a detriment to fully maximizing your financial options, both now and in retirement. A conventional response within the financial services industry to this dilemma has been: If you are focused on retirement, don’t hold non-monetizeable assets!Instead, accumulate paper assets like stocks, bonds and mutual funds, ones that can be easily converted to cash. Simplify your planning by segregating your retirement into specific tax-favored vehicles like IRAs, 401(k)s, etc.

But consider the examples above. Would the business owner think he was better off if he had not developed his business? Would the couple rather not have purchased the beach house? Should the editor have refused the royalty and ownership assets? No. These assets, while not fully monetized, are valuable. Rather than abandoning or ignoring these assets, a better approach is to find creative ways to combine and integrate both monetized and non-monetized assets, both now and in the future.

Competent financial professionals can provide concepts and procedures to determine when and how to monetize assets, whether they should be sold, or what type of collateral they could provide if used for borrowing. This paradigm of asset coordination is the basis for business transfer strategies, such as buy-sell agreements and stock purchase plans. It’s also a key element in estate planning, determining which assets should be liquidated while others are preserved for heirs. And it’s also essential for individuals who want to maximize their lifestyle opportunities in retirement.

Some of these monetization strategies may appear complex; they may require the establishment of separate legal entities (like a trust or corporation), contain special agreements, and include the repositioning of assets into new vehicles (such as annuities or life insurance). Evaluated as individual transactions, some might wonder if these items are necessary, and whether they are worth the cost. But the key is to evaluate the big picture for the benefits, because a coordinated plan is designed to deliver results greater than the sum of the individual pieces.

For example, suppose that distributions from a simple accumulation plan containing $1 million project an annual income of $50,000. In comparison, suppose $100,000 of the $1 million was allocated to obtain a life insurance policy equal to an amount of $200,000 received in a reverse mortgage. When combined, the remaining accumulation and home equity can provide a greater retirement income, while the life insurance ensures the home equity due to the bank will be repaid, allowing the heirs to inherit the house. In this instance, coordinating three items (the accumulation account, home equity and life insurance) results in a better monetization of the home and greater income.

Personal discipline is probably the key element in acquiring assets. Anyone who develop their skills, works responsibly and lives within their means can save for retirement. But to fully realize – and enjoy – your efforts, you may want to consider working with professionals to help you fully monetize your financial potential.

AS AN INDIVIDUAL…
DOES YOUR FINANCIAL SITUATION INCLUDE NON-MONETIZED ASSETS? DO YOU HAVE A PLAN TO MONETIZE THEM?

IF YOU ARE A BUSINESS OWNER…
     DO YOU KNOW HOW YOU WILL YOU MONETIZE THE VALUE OF YOUR
     BUSINESS IN THE FUTURE?