You should store cash – a lot of it. At any given time, I try to keep roughly 10% of my assets in cash form. Some might say that’s a little extreme, but it makes sense. This isn’t a rule, but just a general guideline I use in my own wealth management strategy.
Having a large cash reserve allows me to sleep well at night because I know that should my income streams collapse, I still have cash. It allows me to know that if the market does take a plunge, I’ll be in a position to buy the juiciest cheap stocks.
Having a lot of cash on hand allows me to know I can just drop everything, skip the country, and start completely over without missing a single beat. Cash is freedom – cash is security. Some people call having a cash reserve an “emergency fund” — which is great, but it’s for non-emergency reasons, too.
But before we talk in detail about where to store cash, let’s first do a little housekeeping and make sure we have a clear understanding of what cash even is.
A Definition of “Cash”
“Cash” is the last name of an amazing musician. Haha – I’m just kidding. “Cash” is essentially currency. This means it’s something that you can take to Wal-Mart and buy a fishing pole. Or the gas station and get a tank of gas.
“Cash” can be physical – paper money and metal coins. Or cash can be an idea – the amount of money stored in banks isn’t usually stored in physical form anywhere, and mostly just exists as 1s and 0s in a computer system.
Cash isn’t, however, stuff that can’t be immediately used in the open market for transactions. In other words, a share of Exxon-Mobil isn’t money or cash. Real estate isn’t money. A car isn’t money. These might be valuable, sure. These might be useful, sure. But they’re not cash.
Why You Need Cash
- Security. Having access to currency makes you more secure, because you’re able to handle more situations that come up. If your car breaks down, if you need to leave town without much warning, if you want to leave the country – all of these things are much easier with access to substantial cash.
- Freedom. Having access to currency makes you freer, because you’re able to live without financial chains. Most people live for the most part dependent on their next few paychecks. Few people can take a year off if they needed to do so. Few people can take a sudden unexpected vacation if they wanted to do so. Few people have a lot of cash on hand.
- Investing. Having access to currency makes you more able to make quick investments, because you’ll be able to take action on opportunities that might arise. See a rental property that’s cheap and could bring you a steady income? If you have the cash to buy it in cash, then you can get it quickly and probably at a discount. Same goes for seeing a stock at an oddly low price, a plantation you’d love to purchase, etc. Cash on hand means opportunities are easier to act on and often much more profitable.
Where to Store Your Cash Savings
If you’ve decided to put together a cash reserve, then you need to figure out where you’re going to put it. Savings accounts, money-market funds, under your pillow — these are all options, though some are better than others, of course.
To read a comprehensive guide on where to store your money, check out this article, brilliantly titled Where to Store Your Cash.
Wealth Management 101
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