The old saying is â€œcash is kingâ€. A reporter recently asked me if this was still true, given all of the upheaval we have experienced since 2008. I still believe that’s true, but not because cash is such a great investment. Just look at this quote from a recent MetLife study:
“50% of Americans say they are only one month or less away from not being able to meet their financial obligations if they were to lose their job, and more than half of these, a startling 28% of the total respondents, couldn’t survive financially fore more than two weeks.”
Here are a few reasons that having a cash emergency fund of 3-6 months of living expenses is still a great idea.
- Cash keeps you out of debt. When the unexpected happens, a cash cushion can be a lifesaver. If the air conditioner goes out or the transmission needs to be replaced in your car, having the cash to pay for it saves you from tapping lines of credits or using high-interest credit cards to pay for those expenses. Rather than paying your bank interest, pay with your emergency savings and pay yourself back.
- Cash can save you money by raising your deductibles. If you’ve got a cash cushion, you can save money on things like homeowners and auto insurance by raising your deductibles. Since you’ve got the cash to take care of minor incidents without filing claims, you’ll save money in the long run by having a better claims record, and save money in the short run by reducing your coverages and premiums.
- Cash lets you take advantage of opportunities. You’ve always wanted to go to Europe and you find a great deal on airplane tickets. Got a great lead on a job in another city and not sure how you’d make the move? A cash foundation can allow you to take advantage of opportunities like these.
- Cash takes advantage of the snowball effect of savings. Like most new things, the hardest part of savings is getting started. Setting up a portion of your regular paycheck to go directly into savings can get you started. Soon that balance increases and it can become a positive challenge to find ways to save even more money in any given month.
What do you think? Is cash still a good investment?