Delicate questions are answered delicately. How much cash should I have on hand at home? Financial experts do not agree on a particular amount. But here is the principle:
Financial advisers and ‘gurus’ are divided on a fixed amount to keep. Some suggest keeping $2000 in cash, others, $1000, still others go way above these. Truth is, maybe none of them are wrong. This is for obvious reasons:
- People’s income differs, so the amount each can afford in cash differs too. If I spend $5,000 each month on basic needs, should I store $15,000 to $30,000 in cash?
- People’s needs differ too.
- The word ‘emergency’ is relative. (we’ll come to this later.)
THE PURPOSE OF HAVING CASH ON HAND
- It is universally agreed that keeping some cash in the event of an emergency is wise and practical. However, what constitutes an emergency can differ from person to person. For example, a person with low to average income might have “more emergencies” because he does not have enough to cater to maintenance.
- When you’re broke everything is an emergency. Little repairs and maintenance can be delayed until they become emergencies. A leaking rough, might be left unattended until the entire roof is in need of urgent replacement. A mild health issue can be left unattended to (or be given sub-par medical attention), until it becomes an emergency. Regular care and maintenance can help to reduce the amount of emergencies and their severity. A financial buoyant person might have ‘less emergencies’ to save up for. For the broke guy, ‘life itself’ is an emergency.
- In an ideal situation, most of our needs will be planned beforehand, so there will be little need for quick cash. But life is far from ideal. Every now and then we find ourselves in need of cash to take care of vital daily needs. While going cashless is ideal, buying with cash from the closest store is far better than journeying the distance to find a mall that accepts debit card payment. Having cash in hand is vital, as many daily needs can be solved quicker with some cash on hand.
- While this might sound absurd to an average American. Truth is, in high crime countries, having hard cash on hand, or tucked somewhere in the home might be a lifesaver should you be robbed or attacked by criminal elements. All they want is money. Having cash on hand, can prevent physical assault, abuse of women or something worse.
BENEFITS OF HAVING PHYSICAL CASH ON HAND
Crash in banking system
- The banking system is not infallible. In the wake of the Russian war in Ukraine, the United States and its Western Allies laid a series of bans on Russia, and threatened to kick her out of Swift. Some in Russia panicked, people rushed to the bank to withdraw funds, should the banking system collapse. Times like this is a reminder that the banking system is not infallible. Some stories are better heard than experienced. Having a fixed amount in hand can save one in the short term, in events like this.
Can be used to negotiate better deals
- Have you ever negotiated a deal with a reluctant salesman? When you bring out some money, he doesn’t agree with your price, but can’t afford to lose this cash in front of him. That is the power of hard currency. Taking a dollar note to a store helps negotiate better deals, as physical currency is interpreted as an ‘intention to buy”.
It can be a lifesaver in the event of an emergency
- From getting first-aid in a medical emergency, to boarding a taxi in a dangerous neighborhood, to “Paying off” petty thieves, having physical cash can be a lifesaver in times of emergency.
DISADVANTAGES OF STORING HARD BILLS AT HOME
Too much cash exposes you to robbery
- Keeping large sums of money in a wallet can attract criminals. Having physical cash is interpreted by criminals as having deep pockets. Bringing out a wallet full of dollar notes to buy some candy for your children is an invitation letter to getting mugged.
Fear of fire accidents
- The last decade has seen increase in fire incidents. In the event of fire outbreak. all stored cash could be lost. At a time when you need an emergency fund, losing your store emergency fund will be an added disaster.
Money kept in a savings account can attract some modest interest
- Money is better off kept in some investment trust funds than in the bank. But when compared to keeping a large chunk of currency at home, storing your funds in a high yield savings account brings returns that hard cash never does. It’s like getting rewarded to save funds.
Investing it can bring mouth-watering returns
- It’s always a good idea to explore all options. Keeping too much hard pay on hand, deprives you of the potential profit from investment. Mutual Trust funds, real estate, stocks etc. are better ways to keep funds not in use.
Large purchases are paid for electronically
- Would you take a suitcase of cash to a car dealer to get a ride? So, there really is no need for storing so much cash for deals you’re better off handling electronically.
HOW MUCH CASH IS TOO MUCH TO KEEP AT HOME?
Any cash you don’t need for an emergency and will not solve any need in the nearest future, is a safety hazard. No one can set a fixed amount for you (at least, no one has for now). But understanding the use of cash will help you make the best decision for your peculiar circumstance.
Financial advisors suggest keeping 3 to 6 worth of expenses in cash. Anything above that has a higher risk to reward ratio.
WHEN TO USE CASH
- In the absence of available electronic transfer medium
- When making petty payments
- As a backup plan to debit and credit card failure.
- When on a tight budget. (people spend more when making purchases with cards than cash)
TIPS FOR KEEPING CASH SAFE
- Keep only a limited amount in a wallet or pocket.
- Never display a large amount in public
- Savings are better left in the bank.
- Never keep cash in a back pocket in high crime environments.
- Avoid lonely paths when with a large sum of cash.
Money On Hand Q and A Session
Just as different tools have different uses. So too, physical cash has its merit where electronic funds fall short. How much cash you should have on hand should be determined by good sense rather than strict laws.