What is the Purpose of Cash?

Those of you who have been with us for a while know that, at Lord and Richards, we teach people how to become financially independent through radio, media, out in public, and within our offices. We bring a unique, biblically-based perspective and seek to honor God through what we do and by following timeless and enduring principles. Today, let’s discuss a vital principle of financial independence: where to put your cash.

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We meet with people each day who have concerns related to financial independence or are worried that events outside of their control will interfere with their retirement and future. As Christians, we have a biblical framework and are told to be anxious for nothing. We are also advised to be wise as serpents and harmless as doves; acquire wisdom and never use it for evil. Wisdom is allowing our team at Lord and Richards to put a plan in place together with you as we listen to your concerns, goals, dreams, values, and priorities with money, which is merely a vehicle for attaining what you want in life. Our Financial Independence Review? process is designed to help you retire financially independent and without worry.

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We often use the analogy of home construction when building a fiscal house and will be revisiting them in upcoming articles. A house has a number of key components: a foundation, walls and structure, a roof, and so on. At Lord and Richards, the foundation is part of a structure we teach called “Three Kinds of Money,” where you learn how to partition your investable assets (as opposed to real estate and similar investments) and position them in ways that serve different goals and can be converted back into cash easily.

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Presently, many people have a great amount of on-hand cash due to various factors, such as elections or market volatility, and are unsure how much is enough versus too much. Some clients I’ve met with keep half or all of their assets in cash. Conversely, others avoid cash for lack of growth and place everything in the market, relying on debt—home equity and credit cards—to provide short-term needs. Both strategies are rather extreme. You will be far better off creating balance by building a portfolio that consists of the three kinds of money.

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The foundational layer is partially related to your cash. In our fiscal house, we want to ensure our foundation includes an “emergency fund:” a short-term reserve that is immediately accessible for acute circumstances. We typically recommend having enough to support your present lifestyle for six months; determine your total monthly expenses, including taxes and excluding money you contribute to your 401(k), savings accounts, and other investments.

Your emergency reserve must meet specific qualifications. First, your money must be kept safe, which rules out investments such as stocks, bonds, and mutual funds. Bonds do?come with risk, as we witnessed in 2022 when they dropped equivalently to stocks. We will expand later on what safe options are and how to choose them.

Secondly, your on-hand reserve must remain liquid. An account such as a five-year CD may be safe, but it isn’t liquid. You must be able to access this money at a moment’s notice, whether from an ATM or online transfer, for an emergency, or expected short-term expense, such as a car purchase or vacation.

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Lastly, you want to take opportunities for growth. While we want to achieve safety, liquidity, and growth, only two qualifications can be emphasized to any significant degree at one time. We typically don’t see much growth with safe, accessible accounts. However, we have an anomaly with present interest rates that are high enough for you to easily accrue 3%-5% on your cash via an exclusively online account. Cash is a vital portion of your foundation, whether it’s in the form of a money market or other savings account. If you place your money into a CD, choose a very short-term option with low penalties, should you need to tap into it before it matures.

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In the words of Zig Ziglar, “if you aim at nothing, you’ll hit it every time.” Building a plan for achieving and maintaining financial independence is crucial. This is the first segment of a three-part series where we will continue to expand on cash and its role in your portfolio. In the meantime, I would love to connect you with our team of amazing advisors. You deserve the excitement and joy of being financially independent and having a worry-free retirement. It begins with a simple phone call.

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Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.

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