Why Everyone Should Have A Cash Buffer (Surprising Benefits of Cash)

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Why Everyone Should Have A Cash Buffer (Surprising Benefits of Cash):
Today we discuss the benefits of holding onto some extra cash.
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23 май 2021

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Комментарии : 80

@hrhsophiathefirst4060 3 года назад

Such an accurate assessment, having cash on hand reduces stress in immeasurable ways and allows exceptional flexibility.

@NextLevelLife 3 года назад

It really does 😁

@donyamonique 3 года назад

Finally, someone giving smart financial advice! Thank you for this video! I've been so puzzled as to why financial advisors are still recommending only 3-6 months for an emergency fund and no other cash, especially after an unusual year like 2020. I felt like the only one who believed that having a pile of cash on hand is equally as important as investing for retirement. This video is confirmation that I'm not crazy and on the right track with my savings! 🤪😅😌 #peaceofmind

@gadflyofhumanity_6847 3 года назад

3 to 6 month expenses window is too short. You need more like 6 to 12 months of living expenses. Although, when you get to that six month living expense mark, celebrate that milestone. You're halfway there and are much further ahead than the VAST majority of people, heck even the (keepin' up with da Jonses) "feux Rich".

@lavs23 3 года назад

I witnessed this in 2008, I was just starting my career but saw a lot of people around me stop investing when our whole department took a temporary 20% pay cut to avoid layoffs. The exact time you wanted to invest!

@cato451 3 года назад

The funny part is that is the exact time to have a pile of cash to take advantage of the opportunity. During the “good times” I was piling up cash. When 2008 hit I plowed the money back into the market in 2009. I reserved some to purchase a house too because I knew we would hit a market bottom soon after. I purchased in 2012. It is profitable to be a contrarian.

@waynemiller6070 3 года назад

I was investing heavily before 2008 in the market and in real estate. 2008 I quit investing in the market because I choose to use as much of my income to reducing real estate debt. Now that the properties are paid off everything is alright. I just couldn't afford to do both. Plus, I didn't have to wait 'til "retirement" age to start making an income. When they're paid off most of the rent is yours to spend.

@NextLevelLife 3 года назад

Absolutely! It can make quite the difference if you continue investing as much, if not more, than normal during dips 🙂

@Rangvald8909 3 года назад

@@cato451 be greedy when others are fearful and be fearful when others are greedy. Aka, buy when everyone’s scared and selling (the bad times) and sell when everyone is pumping it (the good times)

@crimiss1 3 года назад

i clicked the like button to assist the algo recommending this video to more people, this is simple yet powerful information not regularly shared.

@matthewkoch6937 3 года назад

It's always good to have cash on hand, it's not called "effective money" in Spanish for nothing. If unexpected problems happen, or you just want some wiggle room in your lifestyle, cash can be your best friend.

@NextLevelLife 3 года назад

Absolutely!

@cato451 3 года назад

I think of cash as the regulator one might find in a properly designed water delivery system. It is essential.

@NextLevelLife 3 года назад

Well said!

@truk5161 3 года назад

Great video. I have a cash buffer for all the reasons mentioned. The main benefit to me is the lack of stress about downturns (buying opportunities) and overall stress in general. Before I was able to build a buffer I always seemed to be stressed out regarding most if not all purchases whether investments or not.

@NextLevelLife 3 года назад

I had a very similar experience before building a buffer myself. It's amazing what a difference it can make 😀

@kenyonbissett3512 3 года назад

A cash buffer also provides opportunities to buy fire sale assets during down times. A friend had enough during a down time to buy a waterfront property on a large river. Regular previous price $100,000, he got it for $40,000. When the downturn ended the price shot back to $100,000 and now is worth $500,000 (lot only). He was able to leverage the $100,000 to build a house and pier for his boat. Everything built on the initial ability to buy the lot for a fire sale price because of that buffer.

@Rangvald8909 3 года назад

I paid my way through university by working like a dog, every single day I wasn’t in class I was grinding away. My goal was to generate enough cash on hand so that I could still live the lifestyle I wanted when there was no work. Worked for me. Doing great now.

@NextLevelLife 3 года назад

That's awesome, Layne! Well done :)

@BennyMcGhee 3 года назад

I have lots of cash on hand, enough to allow me to live on $4 a month for 5 whole years after I retire. I’d have more, but I am actively investing 50% of my after-tax income in a build-it-yourself guillotine kit that nearly guarantees that at the end of those 5 years of $4/month retirement, I won’t find myself crying in the corner of my 5’ x 5’ luxury cardboard box beside the dumpster behind Jake’s Bait & Tackle Barn for another 5 years😆

@gadflyofhumanity_6847 3 года назад

or you can get a cheap pistol and do the same thing but in a more compact package. And you can do it practically anywhere.

@pstratt1294 2 года назад

Jake’s Bait and Tackle Barn, we literally had one in Dresden 😂

@LivingSwedish 3 года назад

Always good to have cash available 💸💸💸

@NextLevelLife 3 года назад

I couldn't agree more!

@MoneyWiseMOM 3 года назад

Good content, and a very relevant topic, I love anything that deals with personal finance.

@NextLevelLife 3 года назад

Me too!

@amyx231 3 года назад

Yep. Emergency fund. I had a car emergency. Credit card got bloated. But emergency fund saved me. I have a working amount of cash in my regular account too. I try to pay bills with my last paycheck - so I have about 1 paycheck’s worth left most days.

@NextLevelLife 3 года назад

Sorry to hear about your car troubles. I also had some issues recently with mine. Glad your emergency fund was there and did the trick though 😀

@chesspwn7457 3 года назад

It seems like many of these reasons is what the emergency fund is for. But you're saying this is in addition to the emergency fund.

@acrobizer1238 2 года назад

Agreed an reducing stress with cash. One develops the essential SWAN approach.

@johnmaddern3519 3 года назад

Very good segment

@NextLevelLife 3 года назад

Thanks 🙂

@jordanwilliams9300 3 года назад

This was great

@NextLevelLife 3 года назад

Thanks, Jordan!

@SuzanneU 3 года назад

I agree with holding a good cash cushion. I keep a well-stocked freezer and pantry fir the same reason. Because I always have 6 months' worth of staples in hand, I can wait for lossleader sales and buy in bulk.

@NextLevelLife 3 года назад

Thanks for sharing!

@michaelcurtis106 3 года назад

Agree on having a cash buffer as long as it's outside of a retirement account (i.e. in a taxable account). It doesn't make sense to have cash inside of a retirement account since you can't access it until age 59 1/2. The question is how much cash to keep on hand. Every dollar that's kept in cash is a dollar that's not generating a (potentially) significant return (or paying down a debt) so there's an opportunity cost there. I do have a cash buffer that's probably a little larger than I normally would have only because of the uncertainty of the times we're living in at the moment. At the same time, I'm also paying extra on the mortgage to try to pay it off as soon as possible which will probably be at the end of the year assuming no interruptions to income. (The mortgage is my only debt). Once the mortgage is paid, a lot of options will be open to me that I'm still evaluating.

@NextLevelLife 3 года назад

That sounds like a great plan, Michael! And yes there would be a point where continuing to add to a buffer would likely be doing more harm than good. I also agree with your point on keeping the cash buffer outside the retirement account. While there are ways to access that money early there are also better places to put the buffer. Retirement vehicles are best when invested 🙂

@jb117354 3 года назад

Price averaging is smart for long term success.

@geraldrate8752 3 года назад

Reason #4... Allows you to still buy a few essential items when super inflation hits.

@Mary-oc5ns 3 года назад

Great video! Would love to see your thoughts about the effects of different rates of inflation on having a cash buffer

@actnowordreamon6774 3 года назад

Oh, the effect is negative. The cash on hands is not for that purpose ... it does not really matter that is the inflation rate as what you do is buying peace. Come and watch my channel also

@Bob-yh7ir 3 года назад

Right on. Approaching early retirement and have been growing the cash bucket. Have 4+ years of living expenses in cash. Another 3 years in non retirement investments. So we can safely drift to 59.5 and really a couple years longer than that before we might want to pull off any gains in IRAs, 401Ks , etc. to keep a healthy cash buffer in our 60s and forward. Once we decide to take SS which will probably be around 64 or 65, it will cover almost all of our monthly living expenses and then anything we want to pull out of markets is just fun money.

@NextLevelLife 3 года назад

Sounds like you are in a great spot, Bob! Well done 👍

@astarisborn9820 3 года назад

💯🙌🏾

@dominick951 3 года назад

Always have cash available. Just in case.

@NextLevelLife 3 года назад

A good plan 🙂

@richarddombrowski5199 3 года назад

Any suggestions on where to park the cash to get the 2% return?

@SeanBaker 3 года назад

Stress/bored spending is REAL!!!

@NextLevelLife 3 года назад

Well said!

@chrisc5991 2 года назад

To those who disagree, you don't know the frustrations seeing profitable investments during March 2020 crash and not having the extra cash to buy them

@NextLevelLife 2 года назад

Absolutely! As the old saying goes "Be greedy when others are fearful; and fearful when others are greedy."

@birdofpassage9875 3 года назад

There are plenty of ways to lower stress without having to spend a penny. I feel that impulse spending should already be budgeted. If something were to go wrong, I feel like that is what having an emergency fund would be for. Debt is a powerful tool that many bag on for its downside costs and risks. Financial literacy and responsible management, in my view, gives you the power of having an extra buffer on an emergency fund, an opportunity to hone in on an opportunity once it confirmed to not be a trap, and depending on the conditions, can be profitable by the trio force of dividends, inflation, and, to a certain extent, growth. I think that the caveat is that you need to have a plan to bring it back to a very low number if not zero even if siezing the opportunity could the "catching a falling knife" situation.

@kevinrehberg8758 3 года назад

Having a cash cushion can have a positive effect simply because the holder has a better opinion of themselves which could put them in a better social position...If you are worth several hundred thousand you aren't going to be hanging out in the neighborhood bar looking for the cheap drinks...talking to the barflies about your successful stock purchase.. are you???? And yes there are dangers in the more affluent circles.. but those that hang onto their money are typically more discerning..I mean they usually don't get where they are by winning a lottery or hitting a jackpot on the slot machines..The "hard saving" individual appreciates the effort it takes to get where they are

@billshelton9147 3 года назад

Not sure you explained how buffer is different from emergency fund. Maybe just double up on emergency fund and keep that as both.

@BusterDarcy 3 года назад

Buy the dip implies you know where the bottom is. Most will either buy too soon or wait too long and miss out before it rises again. Basically the riskiest and hardest way to invest, far more likely to fail than just dollar cost averaging.

@pstratt1294 2 года назад

I have Dca’d in for 30 years.

@kravenofspider 3 года назад

It's called tactical flexibility. One should bake it into everything. More in the checking account, extra principle payments, a few extra percent points in the 401k. Put money away and forget it. Put enough of them together, (along with the regular emergency fund and 3-6 months saved) and you'll be surprised what you can survive when disaster, bad luck and major situation occurs. Plan for the worst, expect the best.

@NextLevelLife 3 года назад

Plan for the worst, hope for the best. I love it!

@lavs23 3 года назад

Now the next question is how much cash on hand is the right amount during the accumulation phase. A multiple of your typical monthly investments or perhaps a certain percentage on your portfolio?

@NextLevelLife 3 года назад

That is the question isn't it? I think it's probably a little different for everyone depending on their situation, risk tolerance, and goals. So the answer is probably "experiment and find a buffer level that feels right to you given the purposes it's supposed to serve." However from a historical, investing perspective it seems as if the strictly financially related benefits start to drop off (though they don't completely disappear) after having a buffer big enough to sustain yourself for a 2-3 years during an economic downturn. Which, depending on your lifestyle and how willing you are to tighten your financial belt during those times may not be too much 😉. But again it'll probably be a little different for everyone since there may be some non-financial benefits.

@jajuanrussell5386 2 года назад

Yeah, the cash buffer serves 2 purposes: 1) collateral on hand, and 2) principal on hand. Collateral on hand is for cases where you determine that it makes more financial sense to self finance. Principal on hand is for cases where you determine that paying off debt early makes perfectly good financial sense. I can think of no other good reasons to hold cash on hand. Not even for spending of petty cash.

@Felixxxxxxxxx 2 года назад

I usually have about 10-20K USD in cash and invest everything above that. I know that it's not the best statistically speaking but it gives me the chance to enjoy the security of having cash and it also gives me the chance to enjoy the money, even when the markets are down.

@davila1978 3 года назад

I plan to sell 20% of my investments and put the money on a fixed income fund earning just 2%, worst case scenario, i can live with that for 8 years, I am 100% into stocks, plan to retire at 55 if the market is not down so i can sell the 20% and create my own cash bucket. Two bucket approach, 8 years worth of living expenses in cash and 80% in stocks to replenish the cash, there will have to be a 10 year great depression to ruin my plan.

@michaelcurtis106 3 года назад

I'm in a similar position and considering doing something along the same lines as you. I just haven't figured out the percentages yet. The 2 (or 3) bucket strategy is a sound idea. It allows part of your portfolio to grow like it did in the accumulation phase while simultaneously giving you something stable to live on in the relative short term. The trick is picking the right time to replenish the cash bucket as it gets used.

@davila1978 3 года назад

@@michaelcurtis106 the percentage is how many years of fix income will make you feel comfortable, in my case i feel really good with 8 years which would equal 20% of my investments, the rest will still be aggressively invested, those 8 years are for basic needs if there is a market crash. If it takes longer than 8 years for the market to recover i will have to work at Walmart.

@michaelcurtis106 3 года назад

@@davila1978 agreed. The reason I haven't figured out the percentages yet is that I don't know what the total value of the nest egg will be when the time comes. That will determine what percentages I end up with. Thanks!

@kzalaska4804 3 года назад

I'd consider moving some into cash when you are 5 years out or so, even if you don't know exactly how much, might save you from having to work a few extra years in a worse case scenario.

@michaelcurtis106 3 года назад

@@kzalaska4804 yeah, I've been considering that as well. I'm beginning to think we need 3 different allocations - one for the accumulation phase, one for pre-retirement (within 5 years or so as you suggested) and one for post-retirement. The reason is that there is no allocation that works for all situations. There are strengths and weaknesses with all of them.