Much of the traditional thinking about cash is well intentioned but unrealistic. Should you have six months of living expenses in the bank for emergencies? Sure. Do you? Probably not.
Sentiment: NEGATIVE
I was lucky to learn early in life that you need money for food and shelter, but there's no ambition in having money in the bank for the sake of it!
There are two things that you need to save for. First, you need an emergency cushion of no fewer than six months of living expenses. This needs to be cash in a liquid account where you can get at it in - yes - an emergency if you need it. In other words, money markets, not CDs. You also need to save for your future: that means retirement.
If you are worried about job security and do not have an adequate emergency fund (ideally eight months' worth of living expenses stashed away in a federally insured bank or credit union), you need to focus more on saving money than paying down the balance on your credit cards.
I get so frustrated when people tell me it's unrealistic to create an eight-month emergency savings fund, or have money saved for a home down payment, or pay off their $5,000 credit card balance.
Money doesn't mean anything to me. I've made a lot of money, but I want to enjoy life and not stress myself building my bank account. I give lots away and live simply, mostly out of a suitcase in hotels. We all know that good health is much more important.
Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.
Money you know you need or want to spend in the next few years is savings. Money you keep handy for an emergency belongs in savings. Money you hope to use soon for a down payment on a house belongs in savings. And all savings belong in a low-risk bank savings account or money market account.
If I could only have cash, I know that I would spend very little.
Cash - in savings accounts, short-term CDs or money market deposits - is great for an emergency fund. But to fulfill a long-term investment goal like funding your retirement, consider buying stocks. The more distant your financial target, the longer inflation will gnaw at the purchasing power of your money.
Make it a priority to have at least eight months of living costs set aside in a federally insured bank or credit union account.
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