10 Reasons Why Cash Is Still King
Have you ever tried paying for a plane ticket with cash? It’s not easy.
Better yet, try renting a car with cash — good luck. There are some things today I can’t imagine not paying by plastic or through my mobile device.
And I’m not the only one…
According to an ING International survey conducted two years ago, nearly one third of U.S. citizens never or rarely carry cash, and 34% said they would go completely cashless if they could.
As mobile payments become easier and more readily available, the need to carry cash and plastic is quickly becoming less important, or so it seems.
Also with savings interest rates almost non existent, it might seem foolish to hold a lot of cash in your portfolio.
But, I’ll happily argue that plastic, mobile payments, and traditional investments haven’t dethroned the king yet. In fact, I can think of 10 reasons why you still want to keep cash on hand.
While there are lot of plastic-only transactions these days, the world still has quite a few places where greenbacks are the only accepted method of payment.
Taxis, family-run restaurants, and small mom-and-pop shops will typically only accept cash or issue a surcharge on small purchases if you wish to pay by credit or debit card. So, it’s a good idea to have some cash on hand, especially when traveling.
For Larger Purchases
Surprisingly, cash is becoming more necessary for larger buys these days, like a home or car. Cash can give you a leg up on buyers in a competitive market if you have a lot of it on hand.
Also, more lenders are beginning to require higher down payments, so without the necessary cash, you might miss out on your dream home.
Emergencies are unavoidable. Your transmission goes, your roof starts leaking, or you run into any number of medical or dental-related emergencies that leave you uncovered under your normal health insurance plan.
For these rare instances, it’s best to have at least 6 to 9 months of cash in a checking account you can easily access. This will allow you to pay for these unexpected expenses without having to incur high interest debt.
Avoid Interest and Fees
Speaking of interest, by sticking to cash you can avoid running up debt on your credit cards. This will protect your credit score, and you won’t have to worry about spending beyond your means. You also free yourself from the stress of having to make monthly payments on different purchases and credit cards.
A stock can 10x in value, but you can’t use it to pay your next grocery bill. The same goes for bonds and CDs.
Sure, you might get a much higher interest rate if you lock yourself into a 10-year treasury bond, but that money is tied up for 10 years. If you want to pull it out early, you’ll face stiff penalties that could erode all your earnings.
The advantage of cash is you can spend it however and whenever you want. Keeping some on hand gives you the luxury of waiting until your CDs or bonds fully mature before you pull out.
Risk of Loss
What do stocks, bonds, gold, and Yogi Berra trading cards all have in common? They’re all non-liquid investments, meaning their worth is not easily accessible, and they can decrease in value.
For example, if you’re in a pinch and need some cash, you’d need to find buyers for all these items before you can use your earnings. This process can take time and the price you sell for is subject to whatever the market demands at that time.
In other words, if now is not a good time to invest in gold, you’ll either have to wait for a good time to sell, or sell low enough that a buyer will be interested.
Furthermore, when the economy is volatile, the chance of losing your investments rises substantially. Don’t underestimate the stability and value offered by cash.
Peace of Mind
Holding cash can indirectly protect your investments by giving you the peace of mind to not sell during a bear market. If you have some cash saved up, you won’t feel dependent on your investment portfolio to pay for your daily living expenses.
Another advantage is if a great investment opportunity arises. Having cash on hand means you can take action immediately. Without this flexibility, you would either be forced to sell shares of your other investments, or miss out on the opportunity altogether.
We live in a time where criminals don’t have to leave the comfort of their home to wreak havoc on your finances. Even large financial institutions like Citibank and Paypal have been targeted by online hackers.
It’s worth investing in a safe for your home and storing some cash there just in case you’re ever a victim of identity theft or cybercrime. This way, if someone hacks into your accounts, you’ll have available cash to pay for things like groceries and gas until things get sorted out.
You Spend Less
A lot of studies have looked at this and the signs are clear, you spend more when you pay with plastic instead of cash. Researchers at MIT found people who were told to use a credit card instead of cash were willing to pay more for purchases.
Another study found that when you pay with cash you’re more likely to look at an item’s cost, rather than it’s benefits. Finally, researchers have found that when consumers are urged to pay with cash, they accumulate less debt after six months than those who don’t.
When the next economic crisis happens and banks start failing and stocks start plummeting, cash will increase in value. By having some cash on hand, you can ensure you’ll enjoy at least some gains should a deflationary period take hold of the economy.
While these are some of some of the pros to holding cash, there’s no doubt some major cons we haven’t discussed. The biggest drawback to keeping a lot of cash on hand is it’s not growing. Ensure your wealth is always growing but keep these cash benefits in mind.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap