Why does cash matter?

The humble wallet is the latest item under threat by disruptive technology as smart phones, electronic and online payment systems are making banknotes and coins redundant.

American economist Milan Zeleny coined the phrase ‘disruptive technology’ to describe how any given technology evolves in a life cycle to be replaced by a new core technology. A classic example was Henry Ford’s 1908 launch of the first mass-produced car, the Model T.

The Model T spelt the end of the horse drawn carriage. In Australia, coach operator Cobb & Co played an important part in the development of the nation from 1850 until the turn of the 20th century. It went into receivership in 1911 due to the proliferation of rail networks and automobiles.

While it’s an interesting note in history, it raises a larger issue. When we finish our education and embark on a career we hopefully have a reasonable idea about our future occupation.

What we are unlikely to think about is how technology or other events may one day interrupt our employment and ability to earn. It’s likely many of us are not planning our wealth strategy in full recognition of the dynamic and changing environment in which we live.

From the demise of traditional media, to the irrelevance of CDs and paper books, and even the rise of online dating services to replace the pub or club as a social meeting place, we see change everywhere.

Rapid change means you don’t know what the future holds for your career. So it has never been more important to take control of your money, and start making it work for you, to achieve and protect your goals and aspirations.

It all starts with cashflow. For most of us, when we think about how to become financially independent we draw a line from savings to an investment property or shares. But some simple planning cannot only make the whole process smoother but also more effective – and in the long term that can make a huge difference to your wealth.

The first step is getting organised. A cash hub should be high on the list of preparations. Typically, a cash hub accrues interest on a daily basis and acts as a central point from which to pay all your bills through BPAY®, direct credit and direct debt, while also managing your deposits and how your cash is dispersed.

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Your financial planner is another vital component in your long term financial security.

Studies show, using a financial planner will yield results. A report by international research group Morningstar2 in late 2012 put the value a financial planner adds to your financial planning at 1.82 per cent a year. To put that in context, if you put $30,000 into a cash account that earned 6 per cent a year compound interest for 10 years, then the cash balance would grow to $53,725.43. If a financial planner added 1.82 per cent to that annual return it would grow by an additional 18.5 per cent to $63,696.35.

Having a relationship with your financial planner means you never have to face decisions alone.

Source: BT, August 2014

® Registered to BPAY Pty Ltd. ABN 69 079 137 518 Information in this article has been provided by third parties has not been independently verified and BT Financial Group is not in any way responsible for such information. While the information contained in this document has been prepared with all reasonable care, BT Financial Group accepts no responsibility or liability for accuracy of information from third parties is accepted. 2. Morningstar report – http://corporate.morningstar.com/ib/documents/PublishedResearch/AlphaBetaandNowGamma.pdf