How Much Cash Should You Keep At Home?

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In a time where electronic banking and the internet are growing increasingly influential in everyday life, keeping cash stored at home may seem like an outdated concept.

However, it’s a lot more common than you think, with many people deciding to keep their cash at home rather than in a savings account.

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From bedside tables to lofts and attic spaces, there are plenty of potential locations for cash to be stored in the typical home.

This guide will take a look at some of the common reasons why people continue to keep cash at home, the potential dangers of doing so, and then advice on how much cash you should ideally keep under your roof.

Why People Keep Cash At Home

People are motivated to keep cash at home in response to a number of potential outcomes. We’ll now take a look at five examples in greater detail. 

Negative Interest Rates 

Many people fear that interest rates could go negative, as they previously have done in Japan and some European countries. Negative interest rates would mean that you’d have to pay the bank to hold your money, rather than earning interest from it. 

Emergency Funds

One of the most common reasons people keep cash at home is in case of emergencies such as a natural disaster. They fear a disaster would cause banks to close, with cash then needed for basic necessities. 

Privacy Issues 

Many people feel that using cash for certain transactions is safer and better for privacy as purchases made through bank accounts or credit cards can create a paper trail. 

Cyber Attacks 

With the financial system all connected electronically, there’s often concern of a wide-scale crash involving either the electrical grid or the internet. The potential for a cyber attack on either is enough of a reason for people to keep some cash at home. 

Small Purchases

It’s often much easier to make small purchases in cash. This is a preferred option for many people as it also reduces the possibility of identity theft. 

The Dangers Of Keeping Cash At Home 

While there are clear benefits for keeping cash stored at home, there are just as many dangers related to the practice. 

Perhaps the biggest drawback of keeping cash at home is the fact that it won’t earn any interest – effectively rendering it “dead money”.

So, if you’re keeping a few thousand dollars stashed away, it will decline in value over time. This is due to inflation, which eats away at the value of any investment not earning interest. 

Another problem of keeping cash at home is the danger of it either being destroyed or stolen. Cash is tangible, so it can easily be destroyed in a fire or carried away by a flood.

Keeping it stashed away safely doesn’t necessarily guarantee its existence. Similarly, cash is easy pickings for thieves who may break into your home looking for anything of value to steal.

This problem is made worse by the fact that cash usually isn’t protected under homeowners insurance. Even if you find an insurance policy which does cover cash, it’s likely to be limited to only a few hundred dollars. 

Exactly How Much Cash Should You Keep At Home? 

The majority of financial experts advise that it’s beneficial to keep at least some cash stored away at home. Whether that’s to provide a safety buffer in the event of a power-cut preventing you from being able to access your bank, or simply to pay your takeaway delivery driver. 

It’s important to remember however, the more cash you have at home, the greater the risks are of holding it. While many sources advise people to keep enough to cover a month’s worth of living expenses in the case of an emergency, it’s a big responsibility to take on. 

At the end of the day, when it gets to anything above a few hundred dollars, you’ll have to decide for yourself whether the risks of holding the cash outweigh the benefits, or vice versa.

Final Thoughts

Many of the reasons that motivate people to store considerable amounts of cash at home are often no more than possibilities. What’s guaranteed however, is the grim, ever-present reality of inflation.

Therefore, while it’s definitely a good idea to keep a small amount of cash safely stashed away at home, it’s much more beneficial to store the majority of your money in the bank. It’s there where your money will be protected against the threats that are ultimately, most likely to happen.

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