How Much Cash Should I Have on Hand?
Few people know how much cash they should have on hand, but it can be an important question to ask yourself. Ideally, you want to have enough money on hand if something unexpected happens. But how much is enough?
What is a Liquid Asset
Liquid assets are considered the most liquid, examples of liquid cash or currency are the physical cash you have on hand and in a bank account.
Also, money owed to your small business by clients. Other near liquid assets that are easily convertible into cash are the following
Types of liquid assets
1. Shares/stocks
Shares are investments that give you ownership of a company. You can get dividends when the company pays out money to shareholders.
2. Fixed interest
Fixed interest securities include Government, Municipal, and Corporate bonds. Bond prices fluctuate based on market conditions. Companies and governments sell bonds to raise funds that it uses to finance infrastructure and pay for services. Investors buy bonds to earn interest payments.
3. Online Savings Account
Online Savings Accounts are great investments because you get paid interest while you sleep. A typical example of having cash work for you. You can also use them as a safe place to store your cash.
4. Certificates of Deposit (CDs) or Guaranteed Investment Certificate (GIC in Canada)
CDs are investments that guarantee you’ll get back what your principal invested. You invest your money for a specific term or amount of time or until a specific date.
CDs/GIC are usually offered by banks and other financial institutions their terms are mostly 6 months, 1, 2, 3, 4,5 and 10 years.
5. Money market accounts
Money market accounts are a safe investment option to consider for liquid funds. Money market accounts are an investment option that allows you to earn more than regular savings accounts.
You can get better returns by investing your money in CDs, government bonds, and commercial paper. Interest rates on these investments are variable, so they go up and down with inflation. These accounts still allow direct access.
Advantages of Cash
- Advantages of liquid funds are the following it attains results that are much superior, are a great safety asset to hold, it is a high liquidity asset to keep and there is no lock-in period thus can be withdrawn on short notice
- Having cash in liquid form is an advantage because you can easily access it when needed. You can also use it as a backup if you need to pay for something unexpectedly. Having liquid assets helps you avoid financial hardships.
Disadvantages of Cash
- Cash is a great investment because it provides tax advantages. However, if you put your money into a 401(k) or RRSPs (Canada), you’ll be taxed when you withdraw the money.
- Inflation erodes the value of cash. Inflation is when the price of things goes up. Your dollars won’t buy as much because the value of your money decreases. This means you’ll be spending more money than before.
This article will discuss the best tips for figuring out how much cash you need.
How much cash should I have on hand?
Many people don’t have nearly as much cash on hand as possible. It would be best to think about how much money you need to survive each day. For instance, commuting costs can be expensive if you’re using public transportation.
Some businesses still operate cash-only, and others may not accept certain credit card payments. Cash-only purchases for chips and other snacks in a work vending machine may require cash as credit cards are not accepted.
You should always carry some extra money around with you. This could come in handy if you need to pay for something like a babysitter and tip at a restaurant.
The specific amount of cash you should keep on hand will depend on how many bills you typically need to pay every month. For example, if you get paid biweekly, your bills are due every two weeks. You only need the money from one paycheck.
On the other hand, if you get paid monthly, and your bills are due every week, you’ll probably need to keep a month’s pay in a checking account to meet those expenses.
how much cash to keep on hand – How to store and carry cash in your wallet?
If you’re figuring out how much cash you should have on hand, you probably already know that you can’t just stuff your wallet with bills. If someone stole your wallet and found all that money, they would also be able to access any of your bank account numbers.
How much cash should I keep for an emergency fund?
There are two schools of thought on this. Some people think you should only keep cash in your emergency fund until it’s enough to cover three months’ worth of expenses.
Financial experts always recommend keeping enough money for the basic monthly income for 3-6 months of worth of expenses – in liquid cash/ currencies, which you can easily access.
They argue that it takes a person at least six months to find another job if you experience a job loss. So six months’ expenses would be enough to cover the costs during an emergency.
The advice applies when you cannot work for some time, if you get injured severely at work or due to a car crash etc.
Do what’s most comfortable for you. All that matters is to ensure that your emergency cash is easily accessible if something unexpected happens.
Why do people keep cash at home?
Cash is useful for emergencies, for example, when the power goes out due to a natural disaster, and they cannot get some money from a bank or ATM. This will helps you survive without relying on other sources of income.
Having cash on hand during emergencies is a smart idea because it can help protect you from natural disasters.
For most people they keep more cash stashed at home because they feel safer than in a bank account.
Also, privacy concerns are a reason why many people store large amounts of cash at home.
However, there is a risk. It’s true; you can get robbed when it’s under your mattress. If someone does break into your house, you could lose everything.
Your minimum goal is to cover at least a few weeks’ worths of expenses, while your maximum should be whatever you can comfortably spare.
If you are retired, how much cash should you keep on hand?
Retirees need to have some cash reserves because their needs are different. And some retirees leave off their retirement investments as a source of income for day-to-day expenses.
Experts recommend retirees have enough money in the emergency fund to cover 6-12 months of living expenses. They should also keep 3-6 months of living expenses in cash on hand.
Most retirees, monthly expenses should be around $1,500-$2000 per month, depending on where they live. Most of the money is spent on utilities, insurance, property tax, TV cable/internet, lawn care, and groceries.
Retirees keep cash for emergencies in case they need to replace a new fridge, washing machine, water heaters, roofing, etc. A retiree should never pay for unexpected expenses with a credit card if you’re on a fixed income.
Credit cards have very high-interest rates. Emergency money must be kept in an easy-to-access account on very short notice.
While it may be possible for them to live off of other investments, most retirees would prefer not to touch their principal (the original amount of money they deposited) while they are still alive.
How to save money to increase emergency saving
Saving money is important because it helps people who need it. People who save money often have more money than those who do not save money. A financial plan helps with savings which enables you pay bills and buy things they want.
- Cut on eating out.
- Reduce spending on entertainment.
- Stop buying new clothes.
- Learn to sew.
- Grow a vegetable garden
- Sell belongings and household items that you don’t need anymore.
- Stop drinking and vaping.
- Get furniture from Salvation Army.
- No spending money on travel
- Cook more at home
Saving money also helps you to avoid debt. Debt means having to borrow money from someone else. This makes it hard to get out of debt if you owe too much money.
Is it illegal to keep large amounts of cash at home?
Is it legal to store large sums of cash in the home as long as the source is recorded in your tax return?
A person has no limits on the amount of cash they can keep properly in their house, as long as it is secured. Since we now live in the digital age where most of our money goes through debit cards and bank accounts.
This is no longer required, and it should be noted that the term “Cash” does not refer only to paper money.
Conclusion to how much cash to keep on hand
The amount of cash you should have on hand will depend mainly on the number of bills you typically pay at once. If you get paid weekly, and your bills are due every two weeks, you only need the money from one paycheck.
On the other hand, if you get paid monthly, and your bills are due every week, you’ll probably need to keep a month’s worth of cash in a checking account.
Others believe you should store as much cash as possible since it is safer than putting money into risky investments like stocks or mutual funds (accounts can go up and down depending on the stock market).
