I seem to be having conversations with clients daily about cash. We talk about how little they spend in cash anymore, the pennies in interest they are earning in their savings or money market accounts, and about how much they should be keeping in cash at all. Here are a few short thoughts for you today about Cash and the most common conversations I have around it.
- Carry Some In Your Wallet – When my 2 1/2 year old wants to play with her cash register, she doesn’t really understand what the paper things in the cash register are for. She does understand the credit card and how it swipes, and how we use it to pay for things when we go to the grocery store or shopping nearly anywhere. I now try to carry cash for this reason, to show her that some things we buy are one of the green bills, and some are 5 or more. It’s a bit early to understand how they’re different amounts, but as your kids get older, can you start to involve them more in the process of understanding how your family spends your money? If you want a fun question, ask a child where money comes from (even more fun if it’s not your own, I must say).
- Save Some For A Rainy Day – Cash in an Emergency Fund or savings account is a critical success factor for financial peace of mind. When I talk to people who are struggling with spending, it’s a cycle of spending, digging out of a hole of credit cards or other loans, and then they can’t ever seem to make that next step of building up an emergency fund. Once you have it, you don’t have to be focused on the return that it earns. Return in an Emergency Fund is just bonus. The point of it is that you have a stable, secure reserve of cash in the event that there is an emergency. While you don’t see that return every day, all you need to do is think about a time when you needed some financial backup and it wasn’t there. The financial return from an emergency fund comes in long-term savings, savings of credit card interest, the ability to have higher deductibles on auto and homeowner’s insurance and the savings you see there.
- Save Some For An Opportunity – This is really where the old saying “Cash is King” comes from. Cash isn’t king because you get a little bit of interest on it at the bank. Cash is King because it allows you to take advantage of opportunity when it presents itself. When you find the home that you’ve been seeking, having the readily available cash to make an offer and get an affordable mortgage is critical. When your parents or grandparents invite you along on that big trip you’ve always talked about taking, or you finally decide it’s time for you to do that trip by yourself and you get an email alert about the airfare sale, having the cash on hand to move on it allows you to move forward confidently.
How else do you see Cash affecting your life?