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How much cash should I carry?

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My father-in-law uses cash for everything. At the gas station? He pays with cash. Pharmacy? Cash. Grocery store? Cash. Car dealership? Cash!

On the other hand, I rarely use cash. When I buy groceries, go to a restaurant, or get supplies at a big box store, I put it on my credit card. Even for small purchases like a cup of coffee, I prefer to use my credit card rather than pay with cash. (Tap preferred, please.)

What makes us different could be a generational thing. It could also be a matter of circumstances; he owned a small business and frequently got paid in cash. I’ve been paid by direct deposit to my bank account since I got my first job at 16 years old. But we’ve both found a system that works for us, each with its own ups and downs.

Your system could be all cash, totally cash-free, or somewhere in between. But is there a “right” amount of cash to keep on hand?

Is it even safe to handle cash right now?

Even the way we use money has been turned upside down by COVID-19. Laboratory research has found that SARS-CoV-2, the 0.1 μm balls of protein that ruined everything, can survive for up to 28 days on banknotes. That’s in ideal conditions, mind you, but the idea that you could get sick from a fiver someone coughed on last week is one that could keep you up at night.

Fortunately, the risk of that happening is comparatively very low. The World Health Organization says the virus primarily spreads by close contact with an infected person. And a good combination of physical distancing, mask-wearing, and hand hygiene is likely enough to prevent the spread. Wash your hands, avoid licking the money (n.b. avoid that anyway), and you’ll be fine.

Still, many businesses have gone cashless as a means of prevention. No federal law in the United States or Canada requires businesses to accept cash. That said, you might need an alternative payment method for the next little while anyway.

Why should I keep cash on hand?

Even during a pandemic, there are plenty of good reasons to have some cash on hand.

When you have cash, you’re always ready for an emergency. If there’s a natural disaster, a blackout, or something that manages to disrupt the banking system, cash keeps calm and carries on.

Cash is also beneficial for those annoying times when credit cards fail. Every once in a while, my credit card company decides my purchase appears unusual or puts a block on my card because I used it at a compromised location. Cash to the rescue!

And, on occasion, my credit card is just maxed out. Using cash can be a good way of keeping track of your spending, especially if you’re on a tight budget. When it’s gone, it’s gone. And nobody is going to charge you a fee for being over your limit.

Cash can also be useful when paying for some services. Babysitters, for example, are most easily paid in cash. Cash tips are always appreciated by those who rely on them.

And when you want privacy, you can pay anyone for anything (or take payment for anything) and be confident that no tracking will occur if you’re using cash.

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Cash is king. Get every drop of cash you can and hold onto it.

– Jack Welch

Why should I avoid carrying cash?

Yes, cash is useful for many things, but there are downsides as well, especially if you hang on to large amounts.

The biggest risk with cash is it can easily be lost or stolen. If you keep a large amount of savings in cash, it’s vulnerable to any shady character who comes into your home.

Service people, your landlord, even friends, and family could dip into your cash stash without you knowing it. And if there’s a flood or fire, all your savings could quite literally go up in flames. Money can go missing from banks, too. But a savings account is far less vulnerable to any of these risks.

Savings kept in cash also miss out on the chance to grow. Deposited in a savings account (or, better yet, invested), your money can multiply. Even low-risk investments like CDs (or GICs if you’re in Canada) can earn enough interest to cover inflation. Savings kept in cash buy just a little bit less every year, and there’s nothing you can do about it.

On the spending side, many credit card companies are happy to pay you rewards for the purchases you were going to make anyway. There are no-fee credit cards that pay as much as 5% cash back. As long as you pay off your balance every month, it’s like getting a discount on everything you buy.

Many credit cards also offer perks like extended warranties and loss coverage that you can’t get when you pay with cash.

And for splitting the check at dinner or paying the babysitter, free services like Venmo and Interac® e-Transfer are an easy alternative to cash that some people may prefer.

Okay, so what should I do with my cash stash?

For your day to day spending, go with what works for you.

I prefer to use a credit card for every purchase because it’s easy, I earn rewards, and I don’t have to worry about having enough cash in my wallet.

On the other hand, my father-in-law prefers cash because it’s easy, he doesn’t have to worry about managing a credit card bill, and he always knows how much money he can spend.

The right amount of cash to keep is the amount you need to cover your spending on visits to the ATM comfortably. For my father-in-law, that’s probably several hundred dollars. I just double-checked my wallet and found $40 in cash. It’s simply a matter of preference.

For savings, however, your cash shouldn’t be living under your mattress. There are just too many things that can go wrong when you keep your savings in cash and too many things you’ll miss out on by not banking it.

Money kept in a savings account is physically safer, can earn interest, and can even be covered by deposit insurance to recover your money if the bank fails.

When it comes to cash, the best course of action for your wallet is to keep doing what you’re doing. The best course of action for the long-term is to trade in the coffee can for a savings account or investments that will protect your savings and put it to work for you.

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