Cash is no longer the dominant form of payment in many areas. While a cash-only lifestyle is still possible, it is not common. Emergency cash is often a long forgotten practice.
Many people don’t carry cash, relying instead on their phones, credit cards, and apps like Venmo or Cash App for transactions.
When discussing emergency funds, the emphasis is on keeping the money in a bank account, not in physical cash. Bank-held funds offer benefits such as earning interest, being insured against theft, and being accessible from anywhere.
Cash remains useful, and in emergencies, it may even be essential. It’s advisable to keep a small amount of cash at home, but what amount is considered modest?
Cash Is Still Necessary
Although many daily transactions can be done without cash, it’s still important to have some on hand. Keeping cash in a secure location, such as a home safe, can be useful in certain situations.
Having cash is important during power outages, as natural disasters can disrupt the power grid and cause blackouts. This can make it difficult to charge devices and use digital payment methods.
Cash is universally accepted and allows you to make purchases even if others do not have the same payment apps as you. During an emergency, having cash on hand can be crucial.
How Much Is Enough
Having a small amount of cash is recommended for emergencies, but don’t go overboard. Your emergency fund should cover several months of expenses. It’s best to have enough for a week of basic necessities such as gas, groceries, prescriptions, and emergency housing.
The amount you need depends on your family size and needs, but usually $500 to $1,000 is sufficient for a temporary emergency, even $200 can be helpful. More than that is unnecessary, consider depositing in a bank for insurance and interest.
To determine a specific amount, list your weekly bills for food, water, medications, etc. and add a night in a nearby hotel. Round up to the next $100 for an estimate of how much cash to have on hand.
Consider these factors regarding your cash reserve:
Revise your emergency cash regularly to ensure its purchasing power. The $500 you save today may lose value over time.
Degradation. Paper currency has a limited lifespan. Handling causes most of the wear and tear of money in circulation. Even cash stored in an envelope in your home office can still be damaged.
To protect your emergency cash, store it in a secure location where it won’t be exposed to moisture, fire, or destruction by young children. Replace it with new bills periodically, such as every few years.
Avoid dipping into emergency funds. Temptation to use it for tips, small debt repayments, or awkward purchases may arise when you’re aware of cash being available. Before you realize, your emergency funds will be depleted, leaving you vulnerable during unexpected emergencies.