Updated: Oct 19, 2018
Cash is KING!!! I know most of you have heard this phrase and perhaps have screamed it yourself. But is this actually true? Is cash really king? Apparently, millennials believe so. According to an article on Yahoo Finance, millennials prefer to sit on their cash. 39% of millennials (between 18-37) said cash is the best place to park money they won't need for over 10 years. In my opinion, cash is one of the worst places to keep your money, and by the end of this post, I plan to make you a believer as well. We will discuss why cash is literally losing you money every day and how cash is killing your chances at a successful retirement.
(Disclaimer: Everyone should have at least 3-6 months of expenses saved in their emergency fund. This blog is related to excess cash outside of your emergency savings.)
So why is sitting on cash so dangerous? Well, the first reason is a concept called “Inflation.” Inflation is the rate at which the cost of goods and services rise (3.22% per year on average). Remember when you could go to the store and get 4 bags of chips for $1? Now those were the days! Today those same sized bags of chips are $.50 each or more. I know some of you are saying, “wow $.25 turned to $.50 big whoop”, but that represents a 100% increase in cost! Let’s look at it on a larger scale. If you had $100 in cash in 1960 and held it in cash, what do you think it would be worth today? 75 dollars? 50 dollars? Not even close! It would be worth $8.21 in 2018. Essentially, by sitting on cash for 58 years, your money lost 92% of its purchasing power. Still, think cash is king?
The second reason cash is dangerous is because it’s not allowing your money to work for you. By keeping your money in cash, you are teaching it to be lazy. You work hard for your money, shouldn’t it be working hard for you? Let’s look at an example of two individual; one who only saves vs. one who invests his savings (For simplicity we won’t factor in inflation):
Tom – saves all his money in a shoebox in the closet. He saves $300 a month for 40 years and has accumulated $144,000. Good job Tom.
Todd – not only saves, but invests his savings is his company 401k. He puts $300 a month into his 401k for 40 years and has accumulated….$1.7 Million! GREAT JOB TODD!
Who would you rather be, Tom or Todd?
So why should any of this be important to you? Millennials are about to face the most significant retirement savings burden in history. Our lifespans are longer, health care cost will be higher, pensions are near extinction, and social security is estimated to begin phasing out in 2034. Millennials are going to be the first generation whose retirement burden is solely on to them. On the bright side, it’s not too late to do something about it. Here is an article on how to get started investing today!