Broker Check

Stop Apologizing for Holding Cash

December 08, 2016

My wife Melinda and I spent Thanksgiving with my in-laws in Athens, Ga. I've always loved this time of year because I feel like it’s the only time we can step away, forget about work, and remember the things that really matter the most.

Our weekend was a ton of fun. We, like everyone else, ate too much. We watched my Dallas Cowboys win their tenth straight game and most importantly got to spend a lot of time with family. I'm one of the lucky ones where "In-Law Jokes" don't apply. We are very fortunate that her family is so close and supportive.

Most of these trips involve us spending some time with Melinda's childhood friends since it’s a rare occasion that they're all back in town at the same time. On Saturday, we visited the Terrapin Brewing company. If you're a fan of craft beer, I'd highly recommend it the next time you're in Athens. 

At Terrapin, we met one couple through mutual friends from South Carolina. With the husband being a mortgage broker and me being a financial advisor, the conversation eventually led to us exchanging our thoughts on business, the economy, real estate, and the markets. 

I made a comment about how part of our process is helping couples save the right amount of money and figuring out the most efficient ways to allocate it to different assets. He then made the comment back to me almost with an apologetic and embarrassed tone: "We're sitting on cash".

Why did he sound like he was so ashamed of this? Is it because ever since we could spell 401k it has been ingrained in us that the highest financial calling in life is to be a person that maxes out their employer sponsored retirement plan?

How many people do you think have become truly financially independent, millionaires several times over, because they have a well-funded 401k at their job?

Imagine you're watching your favorite sports team and the camera pans over to the proud new owner of the franchise. Al Michaels says, "There's Joe Smith, the proud new owner of the team. Mr. Smith as you at home probably know, made his fortune from his 3% match at work."

Not going to happen right? Now as someone who manages investments and retirement plans, I'm not bashing them. They have a very important place in your financial life, but it’s about the right order of operations. Socks before shoes, not the other way around.

I think he was relieved when I told him how much we stress liquidity and how it’s our first step when it comes to cash flow. I complimented him on that and hopefully their family can have even stronger validation that their natural hunch to build cash was a great thing to do.

Here's why we're such advocates for having cash on hand:

  • In case of an emergency: Small things, not really "true emergencies", such as needing new tires may not wreck your cash position. But what if someone in your family had a true emergency and had a significant medical event? Even with health insurance coverage we all know our deductibles aren't cheap.
    • Even worse, what if it was a bread winner who couldn't work for two months? How about nine months? You may have individual or group insurance to cover these events but a good cash position is your first line of defense 
  • An opportunity presents itself. Maybe you're that family who's ready to buy their first home or you're ready to get out of what you feel is your "starter" home and buy the home where you'll spend most of your life. The perfect opportunity presents itself, your realtor calls you and tells you it’s in the neighborhood you want, great school system and right in your price range.
    • If you don't have the cash on hand, raiding a retirement plan for a down payment or taking on more debt for a down payment aren't typically the most efficient ways to go about it.
  • Maybe you've always been the entrepreneurial type and a business opportunity comes up. If it’s the right fit for you, you're going to want the breathing room of cash on hand to jump at it.

Paraphrasing what Charlie Munger has said, cash is like oxygen to a person or a family. When you have a steady flow of oxygen, you don't really think about it. When a person is short on oxygen, it’s all they can think about.  

Bottom line, in my four short years in practice at Ashford, the couples who are in a good cash position have better options, more flexibility, less stress, and are ready for a lot of the financial things that come up in life, both good and bad.

If you feel like you're one of those people sitting on too much cash, don't apologize, be proud of it. If you feel like you're behind with a savings strategy, contact me so I can show you how we help people set up cash flow systems to save more money.