How much cash should you have stashed around the house?
This is a really important and often overlooked aspect of financial preparedness. This advice is not just for retirees but I believe is sound advice for everyone.
Usually when we think of financial preparedness we think of an emergency fund to cover unexpected expenses that we know will pop up from time to time (medical bills, auto expenses, home repairs). But that’s not what I’m talking about.
I’m talking about Emergency Cash!
What would you do if your bank is closed, ATM’s and Credit Card machines are down or even electrical power is out for a few days or maybe even weeks. What will you use to purchase things you must have to get by?
Understanding the “Why”:
The core reason for holding physical cash is to cover immediate necessities if electronic payment systems (credit cards, debit cards, ATMs, online banking) become unavailable due to:
- Natural Disasters: Power outages can render electronic systems useless for days or even weeks.
- Cyber Attacks: A widespread cyber attack could compromise bank systems, making accounts inaccessible or transactions impossible.
- Bank Run/Financial Crisis: While rare, a severe crisis could lead to temporary bank closures or limits on withdrawals.
- Local Disruptions: Even a local internet outage or a power grid issue can prevent you from using digital payments.
In such scenarios, businesses that are open (like gas stations, small grocery stores, or pharmacies) might only be able to accept cash.
How Much Cash to Keep at Home?
Most financial experts suggest a range, and it depends heavily on your personal circumstances:
- The “Starter” Amount: 3 to 7 Days of Essential Expenses
This is the most common recommendation for a basic emergency cash stash. - Calculate your daily essential expenses: Think about what you absolutely need for food, water, medicine, and potentially gas for a few days. Don’t include discretionary spending.
- Aim for $500 – $2,000: Many experts suggest a baseline of $1,000 to $2,000 as a good starting point to cover immediate needs for a few days to a week. For example, if your essential daily spend is $100, then $700 covers a week. If it’s $200, then $1,400 covers a week.
For Extended Disruptions (Weeks to Months – The “Worst Case”):
- This is where it gets more nuanced and less commonly advised for physical cash at home, due to security risks.
- 30 Days of Essential Expenses: If you’re truly preparing for a prolonged disruption, aiming for one month’s worth of essential living expenses in cash at home is a more robust approach. This would cover rent/mortgage (if due during that period), utilities (if they can be paid with cash or in person), food, medicine, and transportation.
- Consider Your Risk Tolerance: If you live in an area prone to natural disasters or are particularly concerned about systemic risks, you might lean towards the higher end.
Important Considerations for Your Cash Stash:
- Denominations: Keep a mix of small bills ($5s, $10s, $20s). Larger bills ($50s, $100s) can be hard to break in an emergency situation, especially if change is scarce. Quarters can also be useful.
- Security: This is paramount. Keeping large amounts of cash at home makes you a target for theft.
- Don’t keep it all in one obvious place.
- Consider a fireproof and waterproof safe: Ideally, one that is bolted to the floor or very heavy. This protects against fire, flood, and makes theft more difficult.
- Diversify hiding spots: Don’t just put it under the mattress. Think about less obvious places a burglar might not immediately check.
- Replenish: If you use your emergency cash, make it a priority to replenish it as soon as possible.
Beyond Cash:
Remember that a well-rounded emergency preparedness plan includes non-perishable food, water, a first-aid kit, essential medications, communication devices (like a hand-crank radio), and a plan for meeting up with family. Cash is just one piece of the puzzle.
In summary:
For most people, $1,000 to $2,000 in smaller denominations is a reasonable amount of cash to keep at home for short-term emergencies. If you are specifically preparing for more extreme, prolonged scenarios like a months-long banking system outage or a natural disaster, you might consider closer to one month’s worth of essential expenses, but be acutely aware of the increased security risks involved and take robust precautions to remain safe.
Thank you for taking the time to read this article.
Please check out my YouTube Video on this topic: Your Emergency Cash Stash – Do You Have One?
If you would like, please leave a comment below or you can email me at www.feedback@wewaonthenet.com.
I’ve also begun a YouTube channel, www.youtube.com/@wewaonthenet where I will be discussing various retirement topics and topics I come across that I think may be of interest. Check it out!
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