Cash: A Very Good Thing

By Dian Vujovich

I’ve never been one to believe the advice from most money pros suggesting that everyone have enough money to cover three- to six-months of living expenses to cover life’s unexpected incidents. That’s crazy. Capped teeth will cost you more than that never mind finding a job. To get an equivalent or better job than the one you’ve got, provided you’ve got a job, can take months to years.

We all need to be able to get our hands on more cash than what it takes to run our households for a few months.

Based on our world today, the long-term goal of someone’s rainy day fund ought to be equivalent to at least one- if not two- or three- year’s worth of living expenses. That’s especially true for the self-employed, sole proprietor and small business owner.

As a freelancer, unemployment—or underemployment– is something I’m familiar with. It’s a hunt-and-peck kind of life on a number of different levels. It’s also a life that allows for a lot of individual freedoms and a need for strong money management skills. Similarly, a small business owner always faces a changing economy and has to have money available to keep her business running in good times as well as bad.

With the numbers of the unemployed soaring, the market’s fall and little building, retail or manufacturing growth happening, having a big fat wad of cash today makes you Queen of the Hill and enviable. Plus, it’s a can’t-be-beat security blanket. Always has been. Always will be. No matter what a broker, financial planner, talking financial head, pie chart or investment pyramid suggests.

So how do you get that bundle? Short of marrying an old, ill bajillionaire, sans a prenup, and leaving ripe banana peels on all the marble floors throughout your home, having a goal based on saving like a squirrel is a good start. Then you’ve got to follow through with that plan. Once created, a solid easy-to-get-at money base will keep your financial life humming along and you able to attend all the local charity balls.

While nothing in life is completely risk-free, the least risky way to build such a base means using cash and cash equivalent kinds of products like money market accounts and short-maturing bonds from high-quality companies or Treasury bills.

I can almost hear someone reading this thinking, “Well, what about inflation?” That’s a legit concern but if your equity assets are down 35 or 40 percent and your cash and cash equivalent type investments are earning 2 or 3 or 4 percent today, watching your cash grow—even in small increments—generally makes people feel good.

That’s not to say equities ought to be overlooked. Or, that we won’t see growth there. But it’s going to take a big turnaround, and a fair amount of time—as in a number of years— for stock market indices to grow 35 or 40 percent. And that will just get them back to even.

So you might say that in today’s credit crunch world, cash, cash equivalents and high-quality fixed-income products have a new luster to them: Buy a short-term bond, for instance, hold it to maturity or buy a CD and do the same even if the return is puny it’s an in-your-hand cash return. Yahoo, you’ve made some money to bank on. And that’s a good thing.