Digital payment platforms like Venmo, PayPal and CashApp have changed the way we use and keep physical cash on hand. Most people rarely keep cash on their person, much less at home. However, there are always unexpected events that can lead to a necessity for having a bit of cash on hand, particularly emergencies ranging from catastrophic weather (hurricanes, wildfire), to power outages. If you can’t access your digital currency or your banking systems are down, having cash can allow you to get gas, food, and medicines with ease.
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However, just how much cash should you have on hand? We asked experts to weigh in and the answer is: It depends.
Keep Cash to a Minimum
From a security point of view, cash is the most insecure asset you can have. Keeping it to a minimum in the house in the case of fire or theft is a good rule of thumb, said Ryan McCarty, CFP from McCarty Money Matters.
Just how minimum is up for debate among financial experts. Danielle Miura, CFP, the founder and owner of Spark Financials, suggested, “You should keep enough money on hand to get you a couple of gallons of gas, pay for a delivery tip, or to help in unfortunate events,” or around $100-$200 at a time. “Emergency funds should not be held at your home, they should be stored in a high-yield savings account of your choice.”
McCarty framed it more in terms of a ratio: “In terms of amount, don’t let your cash exceed 10% of your overall emergency fund and/or $10,000. You can’t deposit more than $10,000 in cash in a given year without raising red flags with the IRS.”
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Enough for Emergency Expenses
Yasmin Purnell, a personal finance expert and founder of The Wallet Moth, a finance website, suggested you keep enough cash on hand in case of an emergency that would require you to access “temporary accommodation, food and drink, gasoline, and medication.” Purnell added, “As a general rule of thumb, having access to $1,000 in cash at home would ensure you can at least pay for immediate expenses in the case of a national emergency.”
Ted Capwell, an investment manager and co-founder of Safe Trade Binary Options, a financial news website, suggests that instead of keeping cash for this kind of emergency, you could keep staples. “For example, instead of keeping $500 for food, buy frozen food and store them in a refrigerator. Or buy an emergency kit instead of keeping money for hospital bills.”
“You don’t need to stash hundreds of thousands of dollars because that’s just over-preparing for a catastrophe that has a really low chance of taking place,” Capwell said.
Less Than $1,000
Jesse Cramer, founder of The Best Interest and relationship manager at Cobblestone Capital Advisors, believes less than $1,000 is ideal.
“It depends person to person, but an amount less than $1,000 is almost always preferred. There simply isn’t enough good reason to keep large amounts of liquid cash lying around the house. Banks are infinitely safer.”
To drive home this point, he shared that neighbors of his parents wound up badly burned in a house fire because they were trying to find their hidden stockpiles of cash.
“This is an extreme example, but the point stands,” Cramer said. “In today’s world of ubiquitous credit cards, Apple pay, Paypal, Venmo, etc., there aren’t enough good reasons to keep large amounts of cash in the house.”
Keep Your Cash Safe
No matter how much cash you keep at home, you’ll want to keep it safe, said Matthew Dailly, managing director at Tiger Financial. “To begin with, you’ll need to locate safe havens for it…The loss of a large amount of cash can happen in a matter of seconds if your home is damaged by a flood or fire. Fireproof safe storage is, therefore, a good idea. In addition, you’ll serve as a lure for would-be burglars…Even if you purchase a high-tech safe, a criminal may still attempt to break into your home.”
For security purposes, this money should be kept in a bolted down safe with any other valuables in the home, McCarty said. “Make sure the safe is fire and waterproof to avoid any damage. Make sure you deposit and replace the money on occasion so that the bills don’t get too old.”
Jay Zigmont, PhD, CFP®, founder of Childfree Wealth, a life and financial planning firm based in Mississippi, offers another word of caution: “Having money on hand, of course comes with the threat of theft or loss, but also, it may be a challenge for you to not spend it. I’ve heard of people freezing the money–literally–to slow them down, giving their spouse or child the key to the safe or other things to slow themselves down. Figure out a balance that works for you.”
Don’t Panic
When things get bad, people have a tendency to panic, and taking out a lot of cash to protect against emergencies can actually work against you. Contrary to popular belief, you are already protected from a bank failure, Dailly said.
If a bank goes under, the standard FDIC insurance is $250,000 per depositor, per insured bank, for each account. “To avoid a total collapse of the entire financial system at once, you can simply divide your fortune among several banks.”
Cash Loses Value
A good rule of thumb is to keep as little as you think is necessary; while it might seem weird, cash actually loses value over time. “Unlike money in circulation, which loses value over time, money in a bank retains its worth and, on occasion, even climbs in value. A safe financial institution is the only way to ensure the safety of your money,” Dailly said.
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This article originally appeared on GOBankingRates.com: How Much Cash To Have Stashed at Home at All Times
As an expert in personal finance and financial planning, I bring years of experience and knowledge to guide individuals on managing their money effectively. I have worked extensively in the field, offering advice on various aspects of financial planning, including emergency funds, investments, and risk management. My insights are based on a deep understanding of economic trends, financial markets, and the dynamics of personal finance.
Now, let's delve into the concepts discussed in the article about how much cash one should have stashed at home at all times:
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Digital Payment Platforms: The article acknowledges the prevalence and impact of digital payment platforms such as Venmo, PayPal, and CashApp. These platforms have transformed the way people handle money, reducing the reliance on physical cash for everyday transactions.
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Importance of Cash in Emergencies: The article highlights the significance of having some cash on hand, especially during unexpected events like hurricanes, wildfires, or power outages. In such situations, access to digital currency or banking systems may be limited, making cash essential for immediate needs like purchasing gas, food, and medicines.
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Security Concerns with Cash: Financial experts, including Ryan McCarty, emphasize the security risks associated with holding cash. Cash is considered the most insecure asset, prone to loss in case of fire or theft. The suggestion is to keep the amount to a minimum to mitigate these risks.
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Recommended Amount of Cash: Different financial experts provide varying recommendations on the ideal amount of cash to keep at home. Suggestions range from keeping enough for a couple of gallons of gas or around $100-$200 (Danielle Miura) to having access to $1,000 for immediate expenses during a national emergency (Yasmin Purnell).
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Ratio Approach to Cash Storage: Ryan McCarty introduces a ratio approach, advising that cash should not exceed 10% of the overall emergency fund or $10,000. This approach ensures a balanced allocation of funds between cash and other forms of emergency savings.
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Alternatives to Cash for Emergencies: Ted Capwell suggests alternatives to keeping cash, such as purchasing staples or emergency kits instead. This approach aims to address immediate needs without relying solely on physical currency.
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Security Measures for Cash at Home: The article emphasizes the importance of keeping cash safe at home. Matthew Dailly suggests using fireproof and waterproof safes, bolted down for additional security. Regularly depositing and replacing the money is advised to prevent the bills from getting too old.
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Bank Failures and FDIC Insurance: The article dispels the need to panic and withdraw large amounts of cash in anticipation of a bank failure. It highlights the FDIC insurance, providing protection up to $250,000 per depositor, per insured bank, for each account.
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Cash Loses Value Over Time: The article touches upon the concept that cash loses value over time. Unlike money in circulation, money in a bank retains its worth and may even increase in value. This supports the idea that a safe financial institution is crucial for preserving the value of money.
In conclusion, the article provides a comprehensive overview of the considerations and expert opinions regarding the amount of cash individuals should keep at home, balancing the need for liquidity with security and value retention.
