If you are a Millennial or Generation Z, you may have never thought about this question. I know friends who don’t carry cash in their wallets and have never thought about keeping cash at home. They grew up in a digital world where most stores accept credit cards or other digital payments, and sometimes don’t accept cash.
However, for older generations, it’s a common question. “How much cash should I keep at home?”, they will ask. I often ask back, “How much feels comfortable?”
The answers will amaze you! Some people feel good with a few hundred dollars, others tens of thousands, and some need even more.
There is no right amount, so what is a reasonable amount?
Let’s explore the purpose of keeping cash at home, how much would be reasonable, and where to store it,
What’s the Purpose of Keeping Cash at Home?
Before I talk about how much is reasonable, it’s important to understand why people keep cash at home.
My reason is simple: emergencies.
I want to be prepared for a natural disaster where the power is shut off and stores are not accepting electronic payments, bartering with neighbors may be needed, or some other emergency where I need to leave town quickly.
Although price gouging is illegal in many areas, it often happens during natural disasters. Even if price gouging does not occur, prices generally go up. Whether it is because of a $9 case of water during a hurricane that normally costs $4 or because hotel room prices are going to their maximum allowable amount after a wildfire, you want to be prepared for increased prices. Cash is almost always accepted as a way to pay during a natural disaster.
Have I ever needed cash for an emergency?
No, but even if I never use it for an emergency, I sleep better at night knowing it is available. That’s the purpose of keeping cash at home.
Who knows what the future holds? Earthquakes, wildfires, tornados, hurricanes – the list goes on of possible natural disasters. Cash at home can be a lifesaver in distressing times.
You never know when it might be helpful. There might be something I’m not thinking about and nobody has ever thought about it. After all, I never thought having N95 masks at home would be helpful for a global pandemic. I bought them when the wildfire smoke was really bad a few years ago and remembered I had them in my closet, which allowed me to donate a box and keep a few for myself. You never know what you might need, and cash can help in those times.
There are a few bonus situations where having cash on hand can be helpful. Sometimes you hire someone, such as a plumber, landscaper, or painter, and they are willing to offer a cash discount instead of paying by credit card. If you have cash at home, you can take advantage of those discounts and replenish your emergency cash at home after paying.
There are others who keep cash on hand fearing an infrastructure meltdown that takes the world offline, banks failing, and privacy reasons. Zero part of why I keep cash on hand has to do with those reasons because I figure if that happens, we are all likely in deep trouble and cash won’t be particularly effective for long. I could be totally wrong, but that’s how I feel. You need to decide why you do or don’t want to keep cash at home.
Like any other financial decision, don’t let the default position be the path of least resistance. Think about it and actively decide to do something, even if it is nothing.
How Much Cash is Reasonable to Keep at Home?
If you have $100 in the bank, the answer will be very different than someone with millions of dollars.
Storing $1,000 at home for someone with millions of dollars will not feel like very much money. For someone with $100, keeping $50 at home could feel risky.
At the end of the day, it needs to be an amount you feel comfortable with because you are the one who needs to live with the decision.
I generally recommend between $500 and $1,000.
For many people, it’s enough money to be effective during emergency situations, but not too much that they stress about having it in the home if they were robbed. It’s a delicate balance.
If you have $5,000 in the house and someone robs you and locates every last dollar bill, you are $5,000 less wealthy. Personally, I’d be stressed holding $5,000 at home because I’d worry about being robbed, forgetting where I stored the money, and concerned that I hid it in an item that I’d donate by mistake.
If I lose or am robbed of $500 – $1,000, I won’t be happy, but it’s not destroying my financial future. The peace of mind it provides far outweighs the risks. I know plenty of people who keep $5,000 and $10,000 at home in cash, and that works for them. It wouldn’t for me, but perhaps as my net worth grows, I’ll feel more comfortable keeping cash at home.
I am confident someone reading this is thinking, “What about gold? Should I store gold or silver at home?”
Sure, if you want. But, in what world are we going to trade gold for food or other basic necessities? How will you split that gold to pay for a loaf of bread? Will people actually accept gold as a form of payment?
I am betting gold would not work in a post-apocalyptic world where people often envision gold working. It’s heavy, it can’t be easily split, and it’s really only worth what the next person is willing to pay. If you are worried about a post-apocalyptic world, I’d store water, food, seeds, matches, weapons, and anything else you’d think to take backpacking in the wilderness.
If you need more proof, think about any post-apocalyptic world movie – is there any gold? No, there is not.
Jokes aside, keeping a reasonable amount of cash at home is prudent. It could be $20 for some. For others, it could be $10,000. Once you start having more than $10,000 at home, I have to wonder the purpose and for which emergencies you are preparing.
What are the Downsides of Keeping Cash at Home?
Keeping cash at home comes with downsides. That’s why you need to weigh it against the peace of mind and possible scenarios where it could be helpful.
The main downsides are:
- You don’t earn interest.
- There is little to no protection if you lose it or are robbed.
- Inflation will eat away at the value or purchasing power.
- You may lose it or your heirs may mistakenly give it away if you are disabled or die.
Interest
If you have cash stored around your house, it may be obvious, but it won’t earn interest in the bank. As of this writing, online savings accounts are paying 0.5%, which means even if you keep $1,000 of cash at home, you are losing out on the opportunity to earn $5 per year.
I’m not losing sleep over $5.
However, you can imagine if you held $10,000 per year and you could earn 2%, you would be missing out on earning $200 per year. As the amount of cash you hold and interest rates go up, the larger opportunity cost you face. Even at $200 per year, the peace of mind that comes from having a comfortable level of cash at home may be more than worth it.
No Protection
If your house burns down or someone robs you of all your possessions, the money is gone. Insurance is not likely to cover it, or if it does, it will likely only cover a very small amount.
Banks and the FDIC exist for many reasons.
Inflation
As prices rise each year, the purchasing power of your cash goes down. For example, if inflation is 2% and you have $1,000 at home, $1,000 in a year will only purchase items worth $980. Similar to not earning interest with the money in a bank account, I’m not losing sleep over losing $20 in purchasing power each year.
Even holding $1,000 over 20 years at 2% inflation would mean the purchasing power of that $1,000 declining to about $673.
There are far better things to worry about and ways to optimize your finances to more than make up for $327 lost to inflation over 20 years.
What if inflation is 10% per year like it was in the past?
Your purchasing power will decline more quickly. I’m still not worried about it. Having $1,000 at home is worth far more piece of mind than inflation eroding my savings at home. Like I’ve previously written, you don’t need to always make the best economic decision. Optimizing for emotional well being is as important, if not more important. If the worry of inflation eroding your savings is greater than the worry associated with being prepared for an emergency and how cash may help solve it, then you need to think about how much cash at home makes sense for you.
Losing Money
In the next section, I’ll talk about where you could store cash in your home, but keep in mind the more places you put it, the more likely you are to lose it. Also, if you become incapacitated or die, your heirs may not find it. There are plenty of stories about money taped to the back of paintings that are sold or donated.
You’ll need to weigh these risks against the amount of cash you plan to keep at home. You don’t want to be that person who decides to store cash in a book on your bookshelf only to accidentally donate the book and an extra $200 inside of it by mistake.
Where Should you Store Cash in Your Home?
This is always a controversial question. I’m not a thief, but based on research, it seems like under the mattress is a popular place to look during robberies. Maybe don’t stash your cash under your mattress.
This article has some interesting ideas of where to keep cash at home.
You could store cash in a safe, but unless you are bolting it to the foundation, it’s probably fairly easy to remove it from your house and break it open later. That’s what happened to these people. Plus, thieves will be on the lookout for a safe. It’s like the guy who keeps a bulging wallet in his back pocket in a major city in Europe. It’s practically an advertisement of where to rob them. It’s nice that some have flood or fire protection, but even that is often limited to 60 minutes or less. If a flood occurred or a major fire, 60 minutes may be insufficient.
The best places to store cash at home are likely in mundane spots nobody would think to look. If you are a thief who needs to quickly get in and out of a house, you likely won’t have time to look in every shirt pocket, under the tops of every drawer, or in every flashlight. There is no guarantee they won’t look in those mundane spots, but it’s probably better than the usual places, such as under the mattress, safe, or the toilet tank.
Please, don’t bury your cash in your backyard. You and your family may be making a donation to another family who finds it years later.
Final Thoughts – Summary
Although younger generations may not think about how much cash to have at home, it’s worth making an active decision about.
If you experience a natural disaster where digital payments are no longer accepted, are you prepared?
Even $50 at home could make a huge difference in those situations.
There is no right amount for people to hold at home. Find an amount that provides peace of mind, but doesn’t worry you if you are concerned about not earning interest or being robbed.
There are plenty of places to keep cash at home – use the common ones you find online at your own risk – and store it where you think it will be secure and where you will remember! Plus, don’t forget to tell other people in your house in case you are not around in an emergency.
The last year taught the world many things, though one of the biggest is being prepared for the unexpected. Cash can help you through unexpected times.