It all started in 1950 when a diner forgot his wallet at a New York restaurant. That day, the modern credit card was born and the way people pay for things was changed forever.
I've had quite a few meetings with clients recently who, during a Global pandemic, have found themselves with a lot of extra cash. With nowhere to travel to and less spent on gas from working at home, a lot of people are experiencing reduced expenses. Some, like me, have turned that extra money into home renovations but others have been stockpiling cash in savings accounts.
Do a quick search online and you'll see that savings accounts right now are paying you next to nothing. If we include inflation, it's actually costing you money to have cash in a savings account. One client said, "I like having it there as a cushion, just in case I need it". I asked them, "When was the last time you needed $10,000 in cash to immediately pay for something?"
I walked them through a scenario of needing a new furnace. You call, get a quote, they come and install it and give you a bill. You then have a set amount of time to pay that bill. They aren't going to ask you to pay before they do the work. Same with a new roof or a car repair.
And even if you did need to pay for something quickly, there is a limit on your debit card so you might have to use your credit card. The point is, if you don't need to use that cash in the next few months, you'd be better off adding it to a TFSA and investing it in something that could potentially return MORE than zero.
At that point, if you need money, let me know and 3 days later, it's in your account. Just in time for your new furnace to be installed.
Kenneth Coombs CFP CHS RRC
Ken has worked in the financial services industry since 2005, is a Registered Retirement Consultant and a Certified Financial Planner. Ken has written financial planning columns and has been a guest in financial print, radio, and podcast programs.