Establishing a good amount of cash savings is a good initiative to build wealth. Failure to do this is actually one of the biggest roadblocks to building your wealth. Having cash savings is something that can come in handy whenever you need anything, especially during emergencies that would require you to spend a significant amount of money. Building up your cash savings will also help you achieve bigger goals, such as building your dream house or buying that great sports car that you’ve always wanted.
Unfortunately, this is one of the most overlooked aspects about money. Studies show that more than half of the American population would rather keep their savings in a bank, and the remaining third choose to have theirs in cash somewhere hidden inside their home while expecting it to grow in value. I think the only thing that will grow from storing your money at home is a massive colony of mold. Remember that due to inflation, the value of money will depreciate. Having readily available cash may also lead to unnecessary splurges. This is one big temptation lying around the house, and before you know it, it is gone.
Sleeping Money will not go anywhere
It is totally alright to have few hundred dollars with you at home for your daily expenses. However, anything more than that is considered too much. It would serve you best if you allocate a specific budget for anticipated expenses and then have a certain amount to cover miscellaneous expenses. You should be able to determine you and your family’s expenses so that you remove the tendency to overshoot the budget.
A common misconception among people is that money should not be placed on a bank or invested into something that will earn reasonable profits. This misconception is the main reason why there are families that are considered well-off but are still struggling financially. The idea of losing their hard-earned money from investments inhibits their earning potential.
Allowing your money to sit comfortably inside your home gives rise to numerous risks, such as those posed by fire, theft, or other natural disasters. These instances are highly unlikely to be covered by insurance. Forgetting where you placed your cash is also another funny thing that may happen to you if you have the habit of simply hiding your cash and then forgetting where you placed it.
Small or Big Earnings are still Earnings
Another wrong outlook toward bank savings and investments is that the interest rate is low or the gains are negligible. Earnings, no matter how small or big they are, will become significant in the long run. While standard savings offer low interest rates, there are more fruitful options that will enable your money to earn more.
Before engaging into any financial move, you must first consider the following factors:
- Whether considering savings or a riskier investment, you should have something for yourself. For investments, in particular, do not place all your eggs in one basket. In the world of savings and finance, greater risks often lead to greater gains. But with this mindset, you should also have a safety net for you not to lose a significant amount of money should the gain becomes a loss.
- Prepare for an emergency fund outside your savings or investment fund. In general, savings and investments will take a while to be cleared and released for spending. You should have an emergency fund to cushion any unforeseeable expenses and leave your savings and investments untouched.
- Familiarize yourself with the process. Investing should not be like a leave and let go scheme. You should know where your money is going from the start to end, and not focus only on the yield. Investments tend to be long-term commitments ranging from a year up to a full decade.
Conquering Financial Fear
For typical employees, fluctuations in the market are sometimes scary and demotivating. These fluctuations are the reason why most people do not want to try the investment market at all and instead keep their savings as cash. When your money is carefully invested, an investment is not considered as a loss even if the market value is down.
If you stick with your cash, you are cancelling every possible opportunity for growth. Rather, you are actually opening yourself to a risk of an actual loss. Keep in mind that if you don’t invest, there is no way to gain, especially when the effects of inflation come in. This is the main reason why you should familiarize yourself with the ups and downs of the investment process. Doing so will put your unnecessary fears and woes to rest, and in the long run, you can master this art and be an expert in the game of wealth.