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In this highlight, we discuss the most efficient ways to save for investment opportunities.
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We have a question from a previous video where you mentioned keeping liquidity to seize opportunities, inspired by Uncle Warren. Liquid cash is depreciating, how much beyond six months would you recommend?
This is a true statement I’ve talked about because I do think cash can be a huge wealth builder if you are the only person in the room that has it when everybody else is underwater. Because everybody takes it for granted, nobody thinks, you know, it’s back to Uncle Warren. You can always tell. I’m going to paraphrase because I have my own, you know, folksy way of sharing things. You can tell who’s skinny dipping when the tide goes out, and that’s when you see who’s naked because Uncle Warren, he was, I think he said that in 2003. I’m trying to think of when he, that quote, the letter of shareholders, but it was, it is so true. I’ve lived long enough that I see people. They want to live for the now and then they never build up that liquidity, and then it goes away. But what she’s actually asking about is, what about building wealth with liquidity?
First of all, this is advanced-level planning. This should not even come into play until you’re kind of in this level eight of the Financial Order of Operations. Oh, you know, letting everybody, if you go to moneyguy.com/resources, you can download the free deliverable. If you want to deep dive on accelerating your wealth, you can go to learn.moneyguy.com, and we actually have a course on it. But this is definitely step eight. Don’t even consider doing this extra cash until you’re really beyond step seven, which is hyper-accumulation, meaning that I want you to have already, I want you to have on autopilot, you’re saving and investing 25% of your gross income and now that you’ve already put that aside, you’ve got that on an automated, inevitable wealth journey. But now you have extra cash that’s building up, and you’re like, “Well, what do I do?” Here’s what I’ve done. As I know, like, we bought a during the reset, the pandemic people panicked about office space, so Bo and I were able to buy this beautiful building that we’re in, and it’ll probably be our building for at least the next 10 years. And then I think even if we outgrow this building, which will be a blessing if we do, I’ll still keep this building because it’s on the square of downtown Franklin. This is the Fifth Avenue of Tennessee, right? I’m telling you, this is a gem that we landed. We would not have been able to do that if I didn’t, if I didn’t run thick on cash. Now realize I own some small businesses. I have employees, so I know a lot of people are counting on me to have extra cash more than others. So I carry that responsibility, and Warren is kind of with Berkshire Hathaway. They have extra float because they’re an insurance company, so it kind of requires them to run extra fat on cash. But, but she is right in the fact that cash does depreciate, meaning that even though cash right now is paying over four and a half percent, if inflation is at eight percent, you know, your purchasing power is being taken away. But I always know there’s a cycle, that there’s going to be a recession typically twice every decade. So that’s not so much time that has to go by that you can take advantage of it because right now, like real estate, you don’t make your money long-term on the real estate traditionally, right out of the gate. You make it on the cash flow when you purchase and valuations got really rich during the post-pandemic period when all this money came out. Real estate values spiked up, inflation spiked up.
I wouldn’t be hot and heavy to be running out and buying something right now, but I would be getting because, like I said, all the extroverts of the doom category are all hanging out together. You’re starting to see an unemployment spike up. You’re seeing real estate not selling as fast as it is. We’ve got market volatility where the market was down over 20 percent last year at points in the year. All those things are hanging out together, and that always makes me think, “Hey, there’s going to be an opportunity potentially that you could use this.” And here’s the thing, it can change from year to year.
Maybe you realize that you know you ran a little fat because you’re worried about your job or you’re worried about the uncertainty of the economy, and that created an opportunity that you could buy a building or you could make a bigger investment because you know an individual stock that you think is going to be around and great for years went down to super cheap bargain basement prices, but you’d have money to jump into it. But maybe you come out of it, and happy days are here again, and things are rocking and rolling. You always have the option of redeploying that cash, and then you can increase your dollar cost averaging. That’s the other thing I like, when I feel like my cash is getting too big, I will just say, “You know what? Great time to increase that monthly investment again.” So, I’ll add an extra few thousand bucks in each of the months, and then it’s always kind of another scarcity game I play with myself. It’s like, “I wonder if I can do this for a full year.” And then after you do it that year, and if your cash is still in a good place, well, hey, why don’t I kick it up again and see if I can do that? It’s kind of like a lot of people who don’t like running but run because of the benefits of it. We’ll use mailboxes as inspiration. “Hey, can you run to that mailbox? Can I run to that stop sign up there?” And you’re giving yourself things to push you. You can do the same thing with your cash. Build it up after you’ve made it to step seven of the Financial Order of Operations. You always go back and redeploy it later.
This is one of those things where people, there’s already gonna be comments saying, “He didn’t answer the question.” The reason is that there are too many nuances on this that I can’t give you. But I can tell you parts of the facets of what you should consider so that you can hopefully make the best decision for your personal situation. I think that makes a lot of sense, Billy. Thanks so much for sending in that question, and we appreciate you being here.
