Cash is resilient because it is recognised and trusted as a secure payment instrument, as evidenced by extremely low levels of counterfeiting. Many consumers carry cash, in case other payment instruments are not accepted or out of service. Cash does not crash. It is not dependent on electricity or the internet.
Understanding the nuances of cash flow is essential, as it's a more accurate measure of a company's financial health than profitability alone. A business can be profitable on paper but still fail due to cash flow problems.
Paying with cash vs. credit helps you keep your debt in check. It can be easy to get into debt, and not so easy to get out of it. In addition to paying more in total for purchases over time, you're also accumulating more debt if you don't pay your bills off from month to month.
Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.
In other words, a company can appear profitable “on paper” but not have enough actual cash to replenish its inventory or pay its immediate operating expenses such as lease and utilities. If a company cannot purchase new inventory, it will slowly become unable to generate new sales.
It emphasizes the point that maintaining stability, taking advantage of opportunities, and navigating uncertainty all depend on having enough cash. Financial distress can occur regardless of profitability or asset worth if there is a cash flow shortfall when needed.
Accounting items like depreciation, capitalized costs, or one-time charges can result in a negative net income even if cash flows were net positive for that period.
What does that mean? A business can be profit-rich but cash-poor when it reports high accounting profits but faces cash flow difficulties due to extended credit terms to customers, excessive stock, or significant capital expenditure.
To many economists and policymakers, cash is a problem: cash transactions are harder to tax, it can be used by criminals, and those who keep their savings in it miss out on interest.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is a metric used to evaluate a company's operating performance. It can be seen as a loose proxy for cash flow from the entire company's operations.
Due to the ability to bypass financial institutions, there is much less likelihood for there to be a record of a cash transaction than an online banking transaction. There is equally less likelihood of suspicious cash transactions being reported to the authorities than ones that involve financial accounts.
Paper money will not become obsolete any time soon.
Cons: Less Secure. Cash is less secure than a credit card. Unlike credit cards, if you lose physical money or have it stolen, there's no way to recover your losses.
Free cash flow plays an essential role in valuation as it shows how much capital a company has available to invest in growth, pay off its debts, or return dividends to investors, which is an indicator of financial health that investors use to determine its present value.
Cash-flow millionaires prioritize consistent streams of passive income, strategically mastering rental properties, businesses, royalties, and dividend-paying stocks to benefit from their power. Instead of homing in on accumulating assets or net worth, they are crafting portfolios that generate regular cash flow.
Cash keeps cost low for businesses
When businesses accept card payments, they are often paying for equipment fees, processing fees, and interchange fees. When consumers opt to pay with cash there are no additional fees or cost to the business.
Cash flow is the inflow and outflow of money from a business. It is necessary for daily operations, taxes, purchasing inventory, and paying employees and operating costs. Positive cash flow indicates that a company's liquid assets are increasing.
A company can get by on high revenues and low or non-existent profits if investors believe that it will become profitable in the future. Amazon is just one example of a company that did that by focusing on growth and revenue rather than profit.
The time value of money: Because of inflation and other factors, cash is worth more now than it will be in the future. That's why having too much of it sitting around can be a bad thing. Opportunity cost: Having cash sit idle costs the potential opportunity to earn a higher return if invested.
It has become especially popular because it can potentially be a gateway to millionaire status. The famed wealthy entrepreneur Andrew Carnegie famously said more than a century ago, “Ninety percent of all millionaires become so through owning real estate.
Can you have a million dollars in a checking account? No rule says you can't have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere.
Musk's best investments include PayPal, SpaceX, DeepMind Technologies, Tesla, and The Boring Company. Elon Musk is an engineer, industrial designer, and technology entrepreneur known for disrupting multiple industries. Musk holds the distinction of being the world's richest person as of January 2025.