Two ways to make and preserve cash in the new normal
My cousin tells the story about our grandpa saying, “I was drafted for WWI, was to report for duty and then received a letter of cancellation…due to the flu.”
My cousin asked him, “Grandpa, you were deferred for just the flu?”
Grandpa answered, “It was different.”
Fast-forward to 2020: These times we are in are “different.”
We are living in a world that is different than anyone alive has been through before. Because of this extreme disruption of what we thought of as “normal” it is important to be careful. This includes your cash position.
If you are one of the lucky few who has gajillions sloshing around, and your only worry is deciding what color your next Rolls should be, then this information isn’t for you. However, if you have a small bit of money and you want to make it last for as long as you can, perhaps even hold on to it, then this is for you.
Everything that we have done in the past to manage our money is suspended. The old system of saving some percent of pay for a rainy day is suspended. Today it’s raining buckets and it is a good thing you have a bit stashed away. Now we have to wait out the forty days and forty nights and then wait longer for the flood to recede and then wait longer for the economy to regrow.
Yes, I am saying you need to be thinking of how you are going to make it nine months to a year in this fundamentally different world.
If you accept that we are “in it” for a year, suddenly your Suze Orman nest egg isn’t going to cut it. You have to think differently and ask, “How am I going to make my cash last?”
You think you’re scared of what the future holds? Your banks and creditors are terrified. They know that you paying them depends on you having a job or other productive work. And right now, with everyone staying home, there is a lot less paying work getting done.
Two steps to make your cash last longer
- 1. Consider drawing down your line of credit
During the 2008-2009 crash, those with lines of credit saw their lines cancelled by their banks. Suddenly, their ability to dip in and out of their line of credit went away. Other people drew down their lines of credit early and put the money in a secure savings area away from their bank’s grasp. This gave them a larger cushion.
This strategy is risky. You will have to pay back the line eventually. That might not happen at a convenient time. Be even more vigilant that you cut expenses quickly. If you continue spending like your operations are normal, you’ll dig deeper into trouble instead of preserving your cash. This is not a good strategy.
Bottom line? Consider your situation and do what is right for you.
- 2. Talk to your lenders
Call your credit cards, mortgage company, landlord, and anyone else you owe money. You don’t have to say, “Please help me.” Simply ask, “What are you doing in these insane times?”
My first call was to the credit union that holds my mortgage last week when we hadn’t reached “lockdown” yet. Without any more prompting than “What are you doing?” they offered to defer my mortgage payment. Yup, just a nice civil request got me a one-month deferral of my entire mortgage payment. I don’t have to use it, but the option is there if I choose.
My next calls were to my credit cards. The range of offers ran from a two-month deferral of all payments with no interest, to a one-month suspension of the payment requirement, to “call us back in a week, we don’t know what we are doing yet.”
I want to give this scale. The global bank with which I have a credit card is the one that didn’t know what they were going to do. The smallest credit card company gave the two-month deferral with no interest. Is this a lesson in small and nimble beats giant bank?
While on the phone with your credit cards ask for an interest rate reduction, too. Almost all will say no. A few will say yes. Small wins help preserve cash. You’ve also set the stage to ask again for a reduction in the future. Don’t be shy about asking, just be kind. The employee you are talking to on the phone is scared also. Remember that the credit card companies are all borrowing from the Fed at zero percent right now. How much do they really need to earn in margin?
Bottom line? These few phone calls preserved a bunch of cash for me. Nice crunchy tasty cash. Cash = oxygen. Now I can relax for a minute because I’ve added months of life to my oxygen.
Need help figuring out how to reduce expenses and preserve your own cash in this new reality? That’s what I do. Because when your business is in a pickle (or might be in the future), call Dill.