Cash is king. We’ve all heard this, but why is it true?
Having cash is a difference maker, but Nick Schneider is back in The Doctor’s Life Podcast studios to tell us exactly why cash is king. All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast.
Why Cash is King?
So many times I see Physicians rushing to purchasing a home, Investing in the stock market, or spending money on discretionary items like cars and furniture. By doing this they sacrifice their emergency fund and cash on hand. This is done because they assume they can build it back up quickly or were told that their home was their most important asset.
I am here to tell you that your most important asset is Cash! Why?
- It will protect you in times of need and transition.
What happens if you get disabled? You will need at least 3 months of expenses until your policy kicks in.
How will you pay to relocate your family if you decide to change contracts? Do you have enough to pay for tail coverage or other exit costs?
- It will give you control over your money!
When you pour money into your home you are giving up control. Sure you may be adding value to the home but that asset is completely speculative until you list your home on the market. What happens if real estate takes another dip? What if you do not want to leave? How do you get access to the value of your home? Home equity loans and reverse mortgages are very expensive and not ideal when you need cash flow.
- It will give you downside protection.
2 rules to investing. 1 Don’t lose your money 2. Don’t forget rule number 1
Cash is the only asset backed by the US government if the economy has another pull back.
It will allow you to rebound much quicker both financially and psychologically.
- Presents opportunities in the future!
We don’t know how the markets will shift and we don’t know what new opportunities will present themselves. Cash is the easiest and quickest way to purchase or finance a new investment opportunity. Do you want to buy into a new partnership? Possibly look at owning a vacation home that provides rental income? It again gives you the control.
How much cash is too much? Right out of training you should build an emergency fund of 3-6 months of expenses as quickly as possible. Once that is established, I educate that no more than 20% of your assets should be in cash. This will usually decrease to around 10% as your investments grow and should never fall below this threshold.