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You don't hold it all cash. You stick most of it in investments and let long-term market trends smooth out day-to-day volatility. It's easy enough to cash out n

You don't hold it all cash. You stick most of it in investments and let long-term market trends smooth out day-to-day volatility. It's easy enough to cash out non-retirement investments in case you have need for a big expense like a home purchase or riding out longer-duration job loss. For the bit of cash you do hold onto, that's a buffer against random short-term life events: home and car repairs, medical expenses, etc. If you spend all your money down, your life becomes brittle to everyday shocks. Money buys security: you can actually make plans and stick to plans if you have a financial cushion. It's the opposite of precarity.

adolph 3y ago
> stick most of it in investments and let long-term market trends Not liquid, doesn't count for this purpose. > random short-term life events There's always something that requires a chunk of change isn't there? You may as well deal with it using normal cash flow. Anything larger than that gets rolled into a loan because interest rates are low (car, medical repayment plan, etc). > Money buys security In a low interest rate world, that security is very expensive. Shocks that are everyday are by definition no longer shocks but normal business. Deal, defer or finance. Roll initial high interest rate immediate financing into lower rate that takes more time to acquire. Taking off this hat of devil's advocacy or steelmanning the opposite: I think the biggest problem of no cushion is the assumption that interest rates will stay low. People behave in meta-rational ways. Nobody says "I enjoy living by each paystub" but when classical incentives like getting a spiff for saving are not present, savings will not be a salient activity. It might even be better to have a level of unpredictable interest rate variability so that folks by and large learn to exercise a balanced approach of spend|save|invest.
- the_snooze 3y ago
  >Not liquid, doesn't count for this purpose. It takes 72 hours at most for me to liquidate shares and for it to show up in my checking account. That's liquid. It's a layered approach: 0-interest checking for day-to-day expenses (i.e., regular cash flow), low interest savings for a cushion (i.e., anything surprising that absolutely needs to be funded within 72 hours), and everything else in productive investments. The cushion means you rarely ever touch the investments, so it grows happily over time, but it's still easy enough to get to just in case. Nothing expensive about this security at all, regardless of interest rates.

adolph 3y ago

> stick most of it in investments and let long-term market trends Not liquid, doesn't count for this purpose. > random short-term life events There's always something that requires a chunk of change isn't there? You may as well deal with it using normal cash flow. Anything larger than that gets rolled into a loan because interest rates are low (car, medical repayment plan, etc). > Money buys security In a low interest rate world, that security is very expensive. Shocks that are everyday are by definition no longer shocks but normal business. Deal, defer or finance. Roll initial high interest rate immediate financing into lower rate that takes more time to acquire. Taking off this hat of devil's advocacy or steelmanning the opposite: I think the biggest problem of no cushion is the assumption that interest rates will stay low. People behave in meta-rational ways. Nobody says "I enjoy living by each paystub" but when classical incentives like getting a spiff for saving are not present, savings will not be a salient activity. It might even be better to have a level of unpredictable interest rate variability so that folks by and large learn to exercise a balanced approach of spend|save|invest.

the_snooze 3y ago
>Not liquid, doesn't count for this purpose. It takes 72 hours at most for me to liquidate shares and for it to show up in my checking account. That's liquid. It's a layered approach: 0-interest checking for day-to-day expenses (i.e., regular cash flow), low interest savings for a cushion (i.e., anything surprising that absolutely needs to be funded within 72 hours), and everything else in productive investments. The cushion means you rarely ever touch the investments, so it grows happily over time, but it's still easy enough to get to just in case. Nothing expensive about this security at all, regardless of interest rates.