When Cash Is King

If banks closed for a few days without notice and ATMs ran out of cash, how long would you be able to buy food and other emergency supplies?

That is not a far-fetched scenario. A severe storm or power outage could easily create such a situation.

Recall what happened after the 9/11 terrorist attacks: The stock market and banks closed for days.

Within a few weeks of that tragic day, I wrote and Harper-Collins published Financial Security in Troubled Times. I donated all my proceeds to 9/11 relief organizations and other charities. The book, later released under the title What You Need to Do Now, offers 28 important steps that can prepare you for emergencies. Here are the four that I consider the most important:

1. Keep cash reserves. We tell our clients that we engage in negotiable securities — stocks, bonds, mutual funds, exchange-traded funds. These securities, like checking and savings accounts and money market funds, are liquid assets, as opposed to illiquid ones like real estate, annuities and jewelry that you can’t quickly convert to cash.

But even liquid investments can’t do anything for you if Wall Street and the banks are closed. In times like that, Cash Is King. Then, only cash can buy food and put gasoline in your car. So, after 9/11, I broadened my definition of cash reserves to include, literally, cash on hand.

My recommendation: Always keep a week’s worth — perhaps two weeks’ — of cash on hand for basic necessities. Use singles, fives, tens and twenties; hundred-dollar bills won’t do you a lot of good at such times, but the smaller bills will.

2. Buy a fireproof safe. Bad things can happen to the cash you keep on hand. It can be destroyed by fire or flood, or it can be stolen. The safe will help protect it and other valuables.

3. Have a large mortgage. Turning from the immediacy of cash to something as big and long-term as a mortgage seems an odd segue, but in fact this is another lesson from 9/11 — and something we have always advised. Having cash outside of your house does you far more good than having the house paid off. The house isn’t liquid. If the bank is closed, it can’t foreclose. By having a mortgage, you get to keep more of your cash.

4. Ask your employer these questions. Another lesson from 9/11: Many employees found themselves laid off, some for a protracted period. How much job security do you have? You might think you work for a fine company and are vital to its operation, but is the business itself secure from risk?

In my book, I list several questions that employees must ask employers. The first: Does your employer have business-continuity insurance coverage (also called business overhead expense insurance)? In other words, if an emergency prevents your company from conducting business, can it continue meeting payroll and other expenses? Second: Does your employer have a disaster-recovery plan? If there’s an earthquake, flood, snowstorm or other emergency that sends everyone home, is there a plan in place for your business to resume key activities quickly — to communicate with employees, clients, vendors and others? A third question: Does the business have key-man insurance coverage to allow it to hire successors if something happens to those at the top?

These are just a few of the harsh lessons learned as a result of the shocking 9/11 attacks. These lessons remain as valid as ever.

There are other steps besides these you should take for emergency preparedness. Talk to a financial advisor, who can help you make sure your basic needs are covered in the event of a difficult situation.

Originally published in Inside Personal Finance December 2011

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