Most people want to make sure their money keeps working for them. Keeping your money in profitable investments is a good idea. However, as important as it is to keep your money growing, you need to make sure that you have some cash on hand.
There are a number of advantages to holding cash:
- Discounts for cash purchases. You can receive many discounts for holding cash on hand. Some gas stations will actually reduce your bill if you use cash instead of a credit or debit card. Companies know there is some risk associated with credit cards. Many are more comfortable with cash payments and are willing to cut your bill for the reduced risk.
- Cash is needed for some purchases. Some retailers or service providers will not allow you to use credit cards or checks. Always have a little cash on hand in case you need it.
- Investment opportunities. Cash is the most liquid asset you can possibly have. If you have cash on hand, you can easily take advantage of new investment opportunities that come your way. It is a lot easier to have cash on hand than to sell less liquid investments to diversify your portfolio.
- Cash is good to have for emergencies. You never know when you may have a dental emergency, your car breaks down or you need to bail a friend out of trouble. Emergencies can be expensive. Borrowing money to pay for an emergency is going to cost even more. Your insurance may cover your expenses, but you may have to wait a while before your insurer sends you a check. You don’t want to pay interest on a loan for those expenses while waiting to get your money back.
- You avoid technical difficulties. You always have to be a little concerned that your credit card may not work for whatever reason. The bank line may be down, the processor may not be working, you may have accidentally exceeded your limit or you may have scratched the card. If any of these things have ever happened to you, you may be worried your card may not work when you need it the most. Holding some cash will help you avoid this mess.
- You do not have to worry about your information being stolen. Carrying cash can be dangerous, because it is easily stolen. However, it is a lot more dangerous if someone steals your credit card information. Some store clerks have stolen credit card numbers and used them for their own purchases. Although this fraud is rare, it does happen. You may want to consider using cash if you don’t have a good feeling about the store or the attendant.
You never want to have too much cash on hand. Cash doesn’t earn interest and can be easily stolen. However, you will find some cash to be useful. Get a sense of how much cash you will need on hand. Some people suggest holding onto about $500, but this can be risky. Make sure any cash you keep is secure and don’t tell too many people about it.