How much cash should you keep at home?

Keeping a certain amount of cash at home is a good idea for several reasons. For one, it makes it easier to pay for smaller everyday expenses. Keeping cash on hand also makes it faster and easier to deal with an emergency that requires you to pay someone directly and immediately.

Cash at home is also a good way to build a reserve in case your primary checking account runs low or experiences issues. Having some money at home also reduces the risk of being locked out of your checking account if there’s some kind of issue with your bank or credit union that results in you not being able to access your funds.

However, keeping too much cash at home can be dangerous because it’s outside the scope of any financial institution. Storing large amounts of money in your house means you’re taking on unnecessary risk and increasing the potential for theft or loss as well as making it harder to be alerted when your financial situation changes and you need to take action.

Topic Index
  1. Deciding How Much Cash to Keep at Home
  2. Reasons for Keeping Cash at Home
  3. The dangers of keeping too much cash at home
  4. Determining how much is too much

Deciding How Much Cash to Keep at Home

The amount of cash you should keep at home depends on several key factors. When you’re deciding how much cash to keep at home, you should factor in your monthly expenses, any existing savings goals, how often you make cash transactions, and your risk tolerance.

Your monthly expenses are the top priority. Keeping a certain amount of cash on hand is a good idea, but you don’t want to go overboard and keep so much that you can’t cover your bills.
Keep in mind that unexpected expenses happen. You could lose your job, your child could fall and break a limb, or a pipe in your home could burst, to give just a few examples.

Having savings in case one of these issues arises is essential, but you shouldn’t keep your emergency fund in the form of cash. You should also factor in any savings goals you have, like saving for retirement or sending your child to college.

If you make cash transactions often, such as paying your bills manually, you’ll want to keep a certain amount on hand. Keep in mind that if you do go overboard on keeping cash at home, you could unintentionally be cutting into your savings goals as well as your safety net.

Reasons for Keeping Cash at Home

There are several reasons why you might want to keep cash at home. Here are a few of the most common ones:

  • Easy Payments: If you’re selling something online, you may want to be able to take payment directly from the buyer rather than having them send a check or money order through the mail. Having a large sum of cash on hand makes this easier.
  • Convenience: If you make purchases at your local grocery store or gas station, you may want to be able to pay with cash instead of using a credit card or debit card.
  • Emergency: You may want to keep cash on hand in case of an emergency that leaves you without access to your checking account, such as a power outage or computer glitch that prevents you from accessing your online funds.
  • Security: If you’re expecting a contractor to complete work on your home, you may want to keep cash on hand to pay them directly.
  • Taxes: If you owe taxes but don’t have the funds available to pay them, you can keep a certain amount of cash on hand to make the payment.

The dangers of keeping too much cash at home

Keeping too much cash at home can be dangerous in several ways.

To begin with, keeping a significant amount of cash at home makes you a target for criminals. Keeping cash at home is a bad idea if you live in a high-risk area, even if you keep it in a safe. Even if you employ security measures, cash can always be stolen by someone who breaks into your home or gains access to your safe.

Keeping large sums of cash at home could also result in you being audited by the IRS. While the IRS tends to look for large discrepancies between the amount of cash you report having at home and your income level, they do have the authority to audit any taxpayer they choose and do so randomly.

Keeping a large amount of cash at home can also make it harder to stay on top of your financial situation. If you keep a significant amount of cash available at home, you’ll have less incentive to keep track of your other financial accounts.

Keeping cash on hand makes it harder to notice issues as they arise, such as low account balances or identity theft.

Determining how much is too much

Figuring out how much cash to keep at home isn’t an exact science. There is no one-size-fits-all amount, and your amount should depend on your financial situation and risk tolerance. However, there are some general guidelines you can follow to determine how much cash to keep at home.

To decide how much cash to keep at home, start by taking a look at your monthly expenses and the amount you need to keep in each account to stay solvent. From there, add in any savings goals you have, such as saving for retirement or paying for your child’s college education. You should also take your risk tolerance into account, factoring in how likely you are to encounter an emergency.

Keeping a certain amount of cash at home is a good idea. However, you don’t want to keep too much because it can be dangerous to your financial health. Keep in mind that cash isn’t very liquid. You can’t use it to pay bills or make investments, and it’s subject to inflation and taxation.

Keep only the amount of cash you need to cover your everyday expenses at home, and keep the rest in a savings account so you can access it easily and without penalty. From there, you can transfer money to your checking account whenever you need it.

Keep in mind that keeping cash at home isn’t the same as keeping cash in the bank. While you can earn interest on the money you keep in your savings account, it’s not accessible in an instant.

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