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How Much Cash Should I Keep On Hand?

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A typical personal finance question is, “How much cash should I keep on hand?” There are plenty of different answers to that question, simply because it depends on your needs and preferences.

You should keep enough cash on hand to cover short-term costs and a potential financial emergency. However, you shouldn’t keep so much of it that you lose out on the benefits of investing it elsewhere.

This guide will help you understand the role cash plays in your finances and how much you should keep in your wallet, at home, and in your bank account for quick access.

Key Takeaways

  • It’s crucial to keep enough cash to cover immediate needs and emergencies, but avoid holding excessive amounts. Too much cash can lead to a higher risk of loss and missed investment opportunities. Aim for a balance that ensures liquidity without sacrificing potential financial growth.
  • For day-to-day expenses, carrying $100 to $300 in cash is typically sufficient. At home, it’s advisable to keep a safety net equivalent to at least one month of living expenses, stored in a discreet, secure, and ideally fire/waterproof location.
  • Working adults should ideally have six months’ worth of living expenses in accessible funds, while retirees should maintain up to twelve months’ worth due to their fixed income and higher medical costs. Adjust these amounts based on personal financial stability and specific needs.

When and Why To Carry Cash

Despite the world's continued movement towards a cashless society, there are still plenty of crucial reasons to carry physical cash in your wallet.

Cash can be convenient when visiting small businesses, hotels, or local markets. Some places will have the facilities to accept non-cash payments like credit cards. 

Many people still prefer cash to avoid paying the transaction fees that come with customers using other payment options. Carrying cash is also a good strategy if you’re trying to avoid overspending. People naturally think twice before spending physical cash because they can see and hold the money in their hands. However, cards and mobile payments make it much easier and more tempting to spend more than you initially planned to.

So, no matter how enthusiastic you are about new payment technologies, you must remember that good old-fashioned cash can still be important in your finances.

Cash on hand

Pros and Cons of Carrying Cash

Cash is a financial tool, just like credit cards and other forms of payment. That means it’s not perfect despite its many advantages.

As an individual, you must understand the pros and cons of carrying cash and how it can serve you. For example, some of the benefits of carrying cash include:

  • Immediate. For starters, cash transactions happen instantly. You will give someone some cash, and they’ll immediately provide you with a product or service.
  • No fees. Cash transactions also do not involve additional costs, such as transaction fees, for you or the business you’re paying.
  • Privacy. Cash is also essential for privacy as it’s harder to trace.

Naturally, cash does have a few drawbacks as well, such as:

  • Potential loss. Physical cash can be lost if you accidentally leave it somewhere or someone steals it.
  • Inconvenient. Cash can also be problematic sometimes. For example, you can’t use it to make online purchases. Also, you’d have to carry a lot of it to make large purchases, like buying large household appliances.
  • No rewards. Cash transactions don’t offer reward points or miles, unlike card payments often do.

Take some time to understand the benefits and drawbacks of physical cash and how it can benefit your financial management.

How Much Cash Should I Carry with Me?

One of the challenges with cash is knowing how much to carry with you in your wallet.

Firstly, you must understand that there is no universal answer to that question. That’s because everybody has different needs and preferences. Still, a good rule of thumb is always to carry between $100 and $300 in cash. 

For most people, that amount of cash is enough to cover the costs of most daily transactions, such as buying food, paying for activities, and even doing a little shopping.

Remember: You don’t want to carry too much cash because you might lose it or feel tempted to overspend. On the other hand, you don’t want to carry too little money and not have enough to pay for your daily expenses.

How Much Cash Should I Have On Hand at Home?

While $100 to $300 is a good amount of cash to keep in your wallet, you should keep more than that at home.

Again, there’s no one-size-fits-all answer about how much cash you should have on hand at home. You can begin by keeping enough money at home to cover one month of your living expenses.

Then, you can raise or lower that amount depending on your unique situation.

Keeping cash on hand at home is to cover urgent expenses and financial emergencies. However, you don’t want to keep too much in case it gets lost, stolen, or destroyed by natural disasters like fires and floods.

How Much Is Too Much Cash To Have On Hand?

Whether you’re keeping cash in your wallet, somewhere in your home, or a bank account, keeping too much of it on hand is not a good idea. 

As you read above, you only need a few hundred dollars in cash to keep in your wallet. On top of that, having enough cash to cover two months’ living expenses in your home is likely more than enough. You should save enough money to cover at least six months of your living expenses for emergencies.

There are two problems that you’ll face when you keep more than that amount of cash on hand, which are:

  • Higher risk of loss. As you’ve seen earlier, carrying too much cash is not good because you might lose it or have it stolen. Plus, the money could get damaged if anything, like a fire or flood, destroys your home.
  • Opportunity costs. Another issue is that keeping too much cash on hand will result in a higher opportunity cost. You’ll miss out on potential returns if you keep excess cash instead of saving and investing it elsewhere.

For these two reasons, it’s crucial that you only keep enough cash on hand to cover your daily costs and a potential financial emergency. 

Everyone’s circumstances are different, so you’ll want to experiment and decide for yourself what amount of cash you feel comfortable keeping.

How Much Cash Should You Have If You’re Still Working?

Working adults should have enough cash to cover their living expenses for at least six months. That’s the rule of thumb when deciding how large your emergency fund should be.

But remember: you must keep only some cash in your wallet or at home. Instead, most of that money should be kept safe in a bank account that’s easy to access in an emergency.

However, there are some instances when you should hold more cash, perhaps up to 12 months’ worth of living expenses.

A larger cash emergency fund is necessary if:

  • You have dependents (e.g. children to take care of)
  • You don’t feel secure in your job (e.g. potential layoffs)
  • You don’t have a stable income (e.g. you’re a gig worker or freelancer)
  • You have other financial concerns

By keeping up to 12 months’ worth of living expenses in cash, you’re ensuring that you can still pay for things for up to a year if you suddenly stop earning money for whatever reason.

How Much Cash Should You Have If You’re Retired?

Retirees should keep enough cash to cover their expenses for at least 12 months. That might seem like a lot of cash to keep on hand and in the bank, but there are some important reasons behind that recommendation.

Retirees will likely not be raising children after reaching retirement age, but they do face a different set of challenges:

  • Fixed income. For starters, retirees typically live on a fixed income like a pension. That means their income won’t fluctuate even if their costs do.
  • Not working. Most retirees have limited work options. This reduces their opportunities to earn more money, making them heavily reliant on the cash they already have.
  • Medical care. Seniors will also have to worry about the cost of medical care. Some costs might be covered by their insurance, but there might still be other parts that they must pay for out of pocket.
  • Senior care. Lastly, retirees also have to think about paying for senior care. That can range from the costs for senior daycare to the cost for full-time, live-in caregivers.

Retirees generally have limited incomes and many living costs to focus on. For those reasons, it’s best to err on the side of caution and have more cash readily available than most people.

How Much Cash Should I Keep at Home?

Earlier, you read that you should keep enough cash to cover your living expenses for at least six months. Most of that cash should be kept safe in a bank account, with only a few hundred on you in your wallet.

As for the portion you should keep at home, a good rule of thumb is to keep at least one month’s worth of living expenses in cash.

Related: Where to safely keep cash at home

Where Should I Store My Cash?

When choosing a place to store cash at home, remember these three qualities:

  • Discreet. Your cash storage must be in a discreet location that only you and your family know about. For example, some people keep their emergency cash hidden on a bookshelf.
  • Secure. You should also get a secure storage container for your cash, like a lock box that’s challenging to open.
  • Fire/waterproof. Ideally, your cash storage must also be fire and waterproof. A high-quality safe, for example, will help protect and secure your cash even if your home gets destroyed.

Remember: You can never guarantee 100% that your cash won’t be stolen, lost, or destroyed. Still, you can take many steps to increase the chances of your cash staying safe, like using cash storage (e.g., a lock box or safe) with the three qualities described above.

Keeping Cash at Home Is a Personal Choice

At the end of the day, remember there is no universal answer to the question, “How much cash should I keep on hand?”. While it’s an excellent idea to keep enough cash to cover short-term costs and financial emergencies, the rest should be kept safe in the bank or invested for your future.

So, start by following the rules of thumb described in this guide. Then, adjust the amount of cash you keep to whatever you feel most comfortable having.

Related Frequently Asked Questions (FAQs)

Here are some answers to the most frequently asked questions (FAQs) about keeping cash on hand:

How Much Cash Does the Average Person Carry?

The average person carries up to $100 in cash, just enough to cover their daily expenses. Meanwhile, they keep the rest of their money at home or in easily accessible bank accounts.

Why Do People Keep Large Amounts of Cash at Home?

People might keep large amounts of cash at home just because it makes them feel safer to have the money readily available. Some people also distrust banks and other financial institutions, preferring to manage the risk of storing that money themselves.

Is It Wise To Keep Cash at Home?

Yes, it is very wise to keep some cash at home to cover short-term costs and emergency expenses. However, it’s not wise to keep too much cash at home because it could get lost or stolen and because it could be better used by investing it elsewhere.

Note: The content provided in this article is for informational purposes only. Contact your financial advisor regarding your specific financial situation.

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