There seems to be a movement going on that believes cash is king.  How many times have you heard that exclaimed lately?  Well I’m here to say it’s not and cash will definitely never be my king.  In fact, I believe in democracy so there really is no king to me but that’s a whole other story.  To me cash is fruit.  Think about it…

What’s your favorite fruit?

People love clementines.  There sweet, juicy and easy to peel.  The great thing about clementines is you buy them by the crate.  You get your little wooden crate of clementines.  I usually can’t wait to get home to eat some.  They’re pretty small and I’ll tend to eat two or three at a time.  Clementines give you a sweet, sugary, juicy flavor that makes your taste buds go nuts.

This is how cash is for people.  Their sense go nuts having cash on them.  It’s a lot like a sugar high.  They feel good with the cash in hand.  The switch gets flipped to money to spend when you have cash in hand.  I feel like a steak and cheese sub today.  Oh look I have cash, let’s go.  I want some clementines.  Cash in hand, clementines in the bag.

The funny thing about clementines is you get a bunch of them in that little crate.  My problem is I never finish them all.  There is always a few left in the crate when it happens.  You know what it is.  You go to grab one and it doesn’t quite feel right.  Maybe it’s just one spot at first, then before you know it the whole clementine is feeling a bit squishy.  Then the discoloration sets in.  Your clementines are rotting.

Cash does the same thing.  Maybe you don’t have all your cash in your hand but instead you are stock piling it in your bank account.  Well you know what’s going to happen to that cash over time.  It’s going to start to rot.  Money is a commodity. Cash today will not be worth as much as cash tomorrow.  Prices will rise, purchasing power will decrease.

The first principle of the Evolution Of Wealth is the power of LUC (liquidity, use and control).  This might be the closest thing I have to a king.  Cash is important.  Just as it is important to have cash it is just as important to not have too much cash.  By using the power of LUC, you will be able to get the features of cash without the downside.

• Yes, you need cash on hand and readily available to you for an emergency.  This amount is different for everyone depending on their situation.
• Cash is great for liquidity and control but it doesn’t have very much use.  It just sits there and rots.
• If you have liquidity elsewhere you can meet quick emergencies and then get your hands on a lot more money in a short period of time (a day or two).
• By focusing on LUC, you will be able to get a whole lot more use out of your money.  Whether it be to combat inflation, provide protection or just get a rate of return.
• Without use, your opportunity costs will begin to pile up.  In fact, you might create compounding opportunity costs.

I understand that people are not responsible.  I get that.  To me, that is the driving force behind the likes of Suze Orman changing her tone.  She talks to the masses, to the average people.  To them, the bigger problem than cash is debt.  If your problem is debt then by all means go to cash, if that’s what it takes to fix your problem.  However, if you are responsible with your debt, then cash is NOT your king.  In fact, at a certain point it is just drag or friction that is slowing you down.

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When you look around at people’s lives there seems to be 2 things that show up in most people’s financial worlds.  If they aren’t there directly it’s 2 things that the people are working towards.  Any guesses?  They are both marketed to widely by the largest financial companies in the US.  Give up?  The 2 things are your 401k and your house.

Chances are you read everywhere how you should be contributing as much as possible to your 401k.  Most of these messages are initiated by two groups, the financial companies and the government.  Then you add in that your whole life you are told that you need to own your own house.  It is instilled in us at such a young age that most people never even question it.  They work to get a mortgage, in order to get their own house.  I have to ask, is this a good thing?

As I was reading The Best Way to Avoid the Worst Financial Problems from @wisebread it reminded me of the 6 principles of the Evolution of Wealth.  Honestly, I have put aside the principles that I originally wrote up.  Why?  Well I really don’t have a reason, basically because life happens and I’ve tried to let this blog go where it goes.  It was the following paragraph in that post that jumped out at me:

I can give it to you in once sentence: Keep the cost structure of your household flexible. That is, arrange your life so that you can react to a fall in your income by reducing your expenses.

This screamed principle #1: the power of LUC.  Did I forget the k?  No.  LUC stands for liquidity, use and control.  These are the main features of flexibility.  Now let’s look at the 2 most popular financial tools that play a major role in everyone’s financial world.

How does a 401k provide flexibility?  Does it provide liquidity, use and control?

1. Liquidity – Fail!  When flexibility is most important, it is difficult to access the money that you put into a 401k.  There are penalties and fees associated with the access as well as probably having to jump through a few hoops.
2. Use – There’s only 1.  It’s saving for retirement.  The money is in your account doing 1 thing, or should I say hopefully doing 1 thing.  People loose track of the main purpose or maybe the only purpose of a 401k.  Saving for retirement.
3. Control – Do you even have any?  The government dictates when and how you can access the money.  The employer or plan administrator dictates the rules surrounding access and investments.  Might you just be a pawn?

How about your house?  Any flexibility there?

1. Liquidity - Is it easy to get money out of your house?  I guess you might be able to convince me if and only if you have a large equity line of credit established.  Oh, what did you say?  Banks are taking those away?  Guess this is a FAIL too.
2. Use - You could make an argument for some use here.  It provides shelter.  It provides some tax benefits.  It might provide some rate or return (emphasis on maybe).
3. Control - This should be a good one…who controls your house?  Let’s see, you need to ask permission and prove that you should be able to pay just to get a mortgage.  Then if something bad happens, just when you need there help the most, the bank says ‘NO’.  Doesn’t sound like much control to me.

Might the 2 most widely used financial tools also be the worst based on Principle #1 and wisebread.com‘s “Avoiding the Worst Financial Problems”?

Related posts:

1. Max Out Your 401k Math
2. 401k, God or Devil?
3. 6 Reasons Not to Max Your 401k

I had a conversation with someone over the weekend that I can’t help but share.  We were talking about Anthony Robbins and his book Unlimited Power.  In Chapter X, he talks about his 6 principles of physiology.  They are the following: 

1. The power of breath.
2. The principle of eating water-rich foods.
3. The principle of effective food combining.
4. The law of controlled consumption.
5. The principle of effective fruit consumption.
6. The protein myth.

Anthony Robbins is not a nutritionist.  He does not seem or claim to have formal education or training in any specialty or area that would make him an expert in health and nutrition.  What he does say is that he researched and spoke to some of the healthiest people he knew and modeled their behavior.  Does this make him an expert?  Probably not.

The thing I love about this chapter of his book is that Tony goes against conventional wisdom.  He tells you he is going to, he pads it for you and then shows you his principles.  I don’t know if these things work because I don’t know enough about the topic.  If you’re reading this and you know about nutrition or health and you’ve read about his principles let me know what you think.  I do know that America has a problem with obesity.  It seems that some of the more convetional diets aren’t working.  Maybe Tony is onto somthing?

What else I do know is ‘financial stuff’.  What I do know is that people are failing financially and that they economy is nothing more than an excuse.  Do you need an excuse?  Or does is just make you feel better?  The conventional ways of doing things are leading to failure.  Is it time for a change?  Are you open to looking outside the box?  Are you open-minded enough to do something that goes against what you read, see and hear because it works?

Here are the first ever written 6 principles of the Evolution of Wealth:

1. The power of LUC.
2. The principle of 15%.
3. The velocity of money.
4. The law of protected savings.
5. The principle of BYOB.
6. The 401k myth.

I will develop and explain these principles in future blog posts but for now I will leave you wondering.  What do you think?  Do any of them sound familiar to you?

***Disclaimer:  This is a rough draft.  I reserve the right to change and update these principles as I see fit.  They will only be modified to better capture and/or explain the concepts of building wealth. ***

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