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Alvin Hall's blog
Alvin Hall's blog
Blogs » Alvin Hall's blog

Cash: Your Most Reliable Safety Net

Cash is always a reliable safety net. A good stash of cash gives you peace of mind and breathing room just in case one of those “what if” moments happens—and they usually do. Your car suddenly needs a costly repair; an appliance in your house or flat needs to be replaced unexpectedly; or your income drops unexpectedly for whatever reason.

Why is cash the key to surviving these situations like these? Because you control it, unlike other forms of money that I like to call near-cash.


One familiar form of near-cash is home equity—the value of your house or flat, over and above the amount of any mortgage loan you’ve taken. People often borrow against their home equity when they need cash. But when housing prices dropped recently, there was less equity available to borrow.

Another form of near-cash is credit cards. In recent years, some people came to rely on high-interest cash advances from credit cards as their back-up in case of an emergency. Many were surprised when banks canceled their cards or lowered their lending limits.
The problem is that near-cash isn’t cash at all—although to many people it feels like it is. In reality, it’s debt. And when you use it, you begin paying interest (very high interest in the case of a credit card cash advance) from day one. And the longer the debt goes unpaid, the more interest you pay.

By contrast, cash pays you. You receive regular interest payments for the cash you have sitting in the bank. These days, those interest payments are probably low—but they’re a lot better than nothing. With cash, you don’t get any nasty surprises through the post or via e-mail saying that you suddenly have less available than you think. Cash is yours and remains available as long as you leave it untapped.
With a cash cushion, you can (1) immediately get real notes to use to pay for your daily expenses and other costs, (2) establish a timeline for how long you can cover your living expenses without going into debt, (3) find creative ways to s-t-r-e-t-c-h your purchasing power and survive without much income, (4) react to “what if” moments without panic, and (5) enjoy the peace of mind of knowing that you have real money in hand that you can use to take care of yourself. Through good times and bad, cash cushions—in so very many ways!
 

Friday, 30th September 2011

Tags:   alvin hall  /  cash  /  savings  /  debt  /  ask alvin
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