Cash is King

FINANCIAL literacy is the great equalizer. It doesn’t matter how much you earn; it’s how much you can save. The goal is to know what to do with your cash. Should we invest all of it? Or is there an advantage of holding on to it?

My financial journey started with the thinking that investing is the best approach in financial management. In most part, it still is. Investing affords us the opportunity to grow our money over time. There will still be fluctuations in returns, but this should not derail us from our focus towards our long-term goal. If you want to get started on building for your child’s education or for your retirement, a financial planner can help you design an investment plan.

An ideal asset portfolio, however, should have a portion for cash. Cash allows one to be liquid. Investopedia defines liquidity as the ease with which an asset, or security, can be converted into ready cash. Cash is the most liquid among assets.

As a fresh graduate and with little knowledge on what to do with my savings, I placed all of it in local stocks. Yes, my money eventually grew. Thankfully, there was no emergency that necessitated the need to sell my holdings at a loss at a time when the market was down.

Cash can be most useful to respond to emergencies. This is the purpose of an emergency fund. Most financial planners recommend an emergency fund equivalent to 6 months’ to 12 months’ worth of expenses. We relate the word ‘emergency’ to health-related needs such as when a family member needs urgent medical attention. An emergency fund extends beyond this.

With the current rise in the prices of oil and commodities, companies may want to downscale and, as such, may reduce some or most of its workers. Even if you are an employee with security of tenure, this still presents itself as a risk. When this risk affects you, use your emergency fund to augment for expenses as you transition to a new work.

Cash can also be used to pay for household expenses. For people who have difficulty managing their credit card bills, this is the way to go. By paying with a credit card, an unaware buyer still has the risk of purchasing more than what he or she needs.

Moreover, a credit card acts like a loan, so there is a risk of paying interest should one default. With cash, your available fund is what you have on hand today. Right now, it’s not literally on your hand. It’s now cashless. The pandemic has introduced numerous cashless options such as e-wallets and online banking.

Cash can enable you to settle personal expenses with less hassle. By saving monthly, individuals can build cash to fulfill their short-term goals. I have clients who save a few thousand pesos a month so they can have a travel fund at the end of the year.

Want to buy that dress or shoe you saw in the mall? Excess cash in your savings account can afford you to buy items that make you feel and look better. Life does need to be enjoyed so better to indulge from time to time.

For investors, it is recommended that you move your investments to a more conservative fund or a higher interest earning savings account as you near your goal.

For example, car price is cheaper when one buys in cash. There is no need to pay interest from bank financing. If you compute for the interest, it goes for P120,000 and up for a 3-year car loan. This also varies depending on the type of vehicle and the timing of the loan application. A car salesman from Northern Luzon told me that there are still buyers who carry cash in a basket. With cash, and if the unit is available, you get the car right away.

There are many ways to store cash. The most liquid is to have it on hand, or through your ATM or e-wallet. Limit your physical cash if you are a daily commuter. If you want to go for higher interest earning accounts, consider digital banks. If you do not need cash for a few months, there are time deposit products from traditional and digital banks.

Cash is king and it is best to have the king by your side.