Only 38% of those polled said they could cover a $500 repair bill or a $1,000 emergency room visit with funds from their bank accounts, a new Bankrate report said. Most others would need to take on debt or cut back elsewhere.
You should always live beneath your means and build up cash balances. Big cash balances=power.
Big cash balances=losing financial strategy.
ReplyDeleteNobody in their right mind keeps more cash than they immediately need, especially in a bank. Near-zero interest, not-zero inflation, taxes on savings, and the risk of having your cash summarily confiscated by some arbitrary state action, all add up to a continual loss of value in cash.
People don't save because the system is designed to dis-incentivize saving. Guess what, it works.
Saving is the act of not currently spending. My choice to not spend means that my $USD does not end up in the bank account of someone else. Of course the logical answer is to invest those $....... i.e. give those dollars to someone else and instead hold onto something worth $ (with anticipated appreciation).
DeleteIt doesn't matter what the incentives are for "saving". It doesn't change the amount of savings, only who has them in $USD.
The true problem is that the middle and lower classes are told that it is their job to be the consumers. They are told that investing is evil. Saving is evil. Doing what the wealthy do is evil. Spending is on their backs. We don't need to tell people to save. We need to tell them that the liberals are keeping them poor by not accumulating/building net worth. You don't accomplish that goal by consuming, and buying a primary residence.
Geoith, could you please tell me where one can put large cash balances where they are:
Delete1) liquid.
2) not subject to government confiscation, any government.
3) earn a decent rate of return without risk of severe principle loss. Money locked up to avoid a principle loss (a treasury after the fed arbitrarily raises rates for instance) is not power.
And don't say gold, because gold can be confiscated at home or overseas by one government or another and has risk of significant principle loss.
Cosmo, with you until the end, but a primary residence has to be compared to rental costs over time and in specific situations. The idea of course would be to keep the averaged total monthly outlay for owning less than the monthly outlay for renting an equal home. So long as that is accomplished only the down payment need be recovered.
Really, Cosmo? The incentives don't matter? Austrian economics is all a farce?
DeleteThere is no place to put large cash balances, B. That is the point. You spend them or you lose them. Those are the incentives. That is the reality. I'm not advocating it, I'm just recognizing it.
DeleteExcept if they are spent then one has no or at least far less power to say 'I quit' and walk away.
DeleteInterest rates have been killed. In the post ww2 era until the late 1980's, a person could get 3-6% on pass book savings. The Fed has taken away the ability of savers to place cash in conservative investments and make a decent rate of return. With ZIRP, a whole generation will miss out on compounding their savings without having to put money in the casino stock market.
ReplyDeleteSo someone with a lot of cash is not going to make any income. He is forced to take bigger risks to his principle in order to get a an upper single digit return. Without a business or real estate income, there is no way to grow savings except for speculation which 99% of the public lacking inside stock info that the elite have has no chance to gain and every chance to lose their money.
You lose if speculate and you lose if you sit on your cash. Welcome to the death of the middle class!!