The Need For Cash

I was watching an interview with Raoul Pal a few days ago on Twitter. In the interview he mentions that we have come to a place where holding liquid money is simply not done. Yes, you may own gold, bitcoin, or any number of investments that will help you maintain or build wealth. However, most of us don't have cash reserves. The end result is that when an emergency does come along, we become motivated sellers. There are many people who would love to buy our gold and bitcoin at a discount to help us liquidate for an emergency.

Here is a link to the video: https://www.youtube.com/watch?v=YdfH3F4ZDhc

Looking at my own finances, I can't say that I disagree with Raoul Pal. I have managed to accumulate savings in crypto at a level that I never would have been able to save in the past. I find myself, however, periodically having to liquidate portions here and there to be able to keep my budget. In the end, things net out. What I liquidate is replaced with extra savings the next paycheck. Still, the fact is that these "mini emergencies" are a glimpse of what I can expect if I had a real emergency.

Real emergencies don't typically happen at the most convenient times. For example, BTC is a bit down this past week. Alts are hurting a bit more. If I had to liquidate today, I would be forced to sell at an undesirable price. As usually happens, as soon as I sell the price will spike.

Part of my problem is that I have been keeping too low of a balance on my debit card. My bills each paycheck vary between $500 and $800. I have been keeping a balance of about $300 on my card. I thought I would be clever by earning interest for a few days until I have to top up to $300. Whatever money is left over, I usually put into crypto. The problem ends up being that I'll have surprise purchases crop up that weren't factored into my budget. Then I have to liquidate crypto to help me cover the difference. This is crypto that would have otherwise been cash savings or stablecoin.

I need to stop trying to be clever. I would be better served by raising the debit card top up level from $300 to $1000. This way, my card has enough cash to cover both expected and unexpected expenses. Then, the next paycheck I can top up the balance again. It would also make sense to have a second cash account with the same balance as the debit card account to act as an emergency buffer. This would spare me having to liquidate my investments.

If we listen to traditional financial advice, I should save up to six months of household expenses to help us weather any emergency. This is where I hesitate. That's a lot of money to sit around not working. However, this is probably what Raoul Pal was referring to when he spoke about our aversion to having cash. Mathematically, it makes sense to have that money invested. However, strategically, the cash needs to be available to deploy relatively quickly. In reality, I could use credit cards to get me over a quick bump. Then I would pay off the credit cards with savings. The point of all this would be to have cash that I can use to make that payment without pulling it out of investments that would have tax consequences.

This is definitely a time to review what I am doing with my money and the reasoning for doing it. I may have jumped the gun by starting to invest before establishing savings.

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