Stagnant Money

[Orionjoel]

Hi,

I have been reading a little of the book "You were born rich" by Bob Proctor. One of the things he mentions in the first chapter is the thought that money does not like being left stagnant. For example kept in a Box at home.

This got me thinking and it is something that I have been party to a little. All my coins go into a jar, which at this point has been accumulating for over a year. I also have some cash that I hardly ever touch but keep it handy just in case. This money is really stagnant money, it is not being used for anything it is not making interest it is really no value till it is used.

Now my alternative is put it in the bank where at the moment it will make me 5.05% interest. This means the money is now going to be doing something and making some return for me, however money sitting in the bank could it still be seen as being stagnant money? Even though it is part of the cycle of creating more, even if it is only a small amount?

Look forward to your replies on this, both Objective and Subjective responses are welcome.

Joel

[Mounds]

Hi there Joel,

The "problem" with keep cash sitting around is that it loses about 3% a year in spending power. Now, if you have $200 sitting around the house, I wouldn't panic. If it's more like $10k, then I would look into investing it.
Here's a neat idea for that money you have sitting around the house. I think this was a Warren Buffett lesson. He was asked what the average person should invest in, if they had $1000 to invest. His response? Consumer staples. Toilet paper, tooth paste, soap, stuff your going to use and it doesn't go bad. I actually tried this at one point. I spent about $250 on toilet paper, tooth paste, body wash, soap, shampoo, deodorant. Came home with a TON of stuff since I bought it all on sale. Everything lasted over a year, some stuff almost two years. It's not a bad idea if you have the space.

Gives you some ideas

-Tim

[fellow traveler]

Somewhat piggy backing what Mounds has shared, ... another option is you might consider purchasing gold bullion with that cash. ... Gold has been doing quite well over the past ten years and is expected to continue to do so over the next ten to fifteen years. ... As the dollar declines each year in value, due to inflation, .. gold gains.

... You can purchase as small as one gram bars of gold which today are selling for approximately $50 per gram with the added premium charged. .... Of course if you have enough to spend, ... purchasing the one troy ounce bars are the cheapest way to acquire gold bullion with the lowest premium charge.

[Acting Like Godot]

Originally Posted by Orionjoel

All my coins go into a jar, which at this point has been accumulating for over a year.

You should just get in the habit of using your coins.

I used to do the piggybank thing like you. Now I regularly use all my coins and the only coins I have at any time are just the few coins in my wallet.

[Curtis2011]

Put your money in the bank, and the bank is using it elsewhere to get their own returns on it. That is why they can afford to pay you the dividends or interest every year.

Not really stagnant money is it?

[escapeplan]

Originally Posted by Curtis2011

Put your money in the bank, and the bank is using it elsewhere to get their own returns on it. That is why they can afford to pay you the dividends or interest every year.

Not really stagnant money is it?

Well- they used to be able to pay you interest!

[Lioness]

Originally Posted by Mounds

Consumer staples. Toilet paper, tooth paste, soap, stuff your going to use and it doesn't go bad. I actually tried this at one point. I spent about $250 on toilet paper, tooth paste, body wash, soap, shampoo, deodorant. Came home with a TON of stuff since I bought it all on sale. Everything lasted over a year, some stuff almost two years.

This is not only cheaper than buying smaller amounts, it's more convenient to stock up and it's an inflation beater. I used to study the circulars and clip coupons and catch the big sales on these items. I found it cheaper to do the supermarket or Walmart sales rather than spend money on a big club memberrship. It's great never to run out of TP and paper towels!

I like having a jar of coins around. In case of emergency, I can cash them in.

[Tara680]

Originally Posted by Orionjoel

Hi,

I have been reading a little of the book "You were born rich" by Bob Proctor. One of the things he mentions in the first chapter is the thought that money does not like being left stagnant. For example kept in a Box at home.

This got me thinking and it is something that I have been party to a little. All my coins go into a jar, which at this point has been accumulating for over a year. I also have some cash that I hardly ever touch but keep it handy just in case. This money is really stagnant money, it is not being used for anything it is not making interest it is really no value till it is used.

Now my alternative is put it in the bank where at the moment it will make me 5.05% interest. This means the money is now going to be doing something and making some return for me, however money sitting in the bank could it still be seen as being stagnant money? Even though it is part of the cycle of creating more, even if it is only a small amount?

Look forward to your replies on this, both Objective and Subjective responses are welcome.

Joel

What place is giving you 5.05% interest?

I would be interested in knowing!

[Orionjoel]

Hi everyone, and thank-you for your responses.

I did end up making the decision to put about half the money I had at home back into the bank, will be more benefit there then anything, even with inflation should still come out 2% better off.

Tara, this is from a building society in australia called Heritage, Interest rates i AU are quite different to the US.

Joel

[SnerpGoodWord]

Originally Posted by Mounds

Hi there Joel,

The "problem" with keep cash sitting around is that it loses about 3% a year in spending power. Now, if you have $200 sitting around the house, I wouldn't panic. If it's more like $10k, then I would look into investing it.
Here's a neat idea for that money you have sitting around the house. I think this was a Warren Buffett lesson. He was asked what the average person should invest in, if they had $1000 to invest. His response? Consumer staples. Toilet paper, tooth paste, soap, stuff your going to use and it doesn't go bad. I actually tried this at one point. I spent about $250 on toilet paper, tooth paste, body wash, soap, shampoo, deodorant. Came home with a TON of stuff since I bought it all on sale. Everything lasted over a year, some stuff almost two years. It's not a bad idea if you have the space.

Gives you some ideas

-Tim

This is VERY sound advice - with that small an amount of money, buying staples you know you'll buy down the road when you find them deeply discounted can give you a rate of return far in excess of risk free market returns with essentially no risk on your part. Of course, if you instead use it as an excuse to splurge on stuff you don't normally use, then the whole benefit goes away.

One place I would differ is that comment about a 3% loss of buying power if your money is idle. While for the last 70 years we've had an inflationary environment almost constantly (which would make your advice correct), that's not currently the case. The CPI fell in 2009 for the first time since the 50's, and 2010 is looking a bit deflationary as well overall. Point being, the situation appears to have changed and advice that was appropriate in the context of inflation may need to be re-thought.

Edit: I missed that OP is in Australia. I don't know your currency & inflation situation well, but you need to take that into account. If your bank will give you a 5% rate on an insured deposit, that is indicative that you do need to keep your money active, because your interest rates and inflation are higher than in the US.

As a side note, that would also suggest that the USD->AUD carry trade might be worth looking into.