When it comes to preparing for emergencies, having a stash of cash at home can be a lifesaver. However, determining the right amount can be tricky. While some might think that a large sum like $480,000 is necessary, experts recommend a more practical approach.
John Ramey, founder of The Prepared, advises keeping enough cash to cover immediate expenses until help arrives. "It's about having enough to get by for a few days," he says. This means considering your daily needs and multiplying that by the number of days you want to be prepared for.
Why Keep Cash at Home?
In an emergency, access to electronic payment systems might be compromised. Natural disasters, power outages, or even cyber-attacks can render ATMs and credit card machines useless. Having cash ensures you can buy essential items like food, water, and gas.
According to the Utah State University Extension, having smaller denomination bills, such as $1 and $5, is beneficial. "In an extreme emergency, you may have to pay huge amounts for even a bottle of water," they note. Smaller bills can help you avoid overpaying when change isn't available.
How Much Cash is Enough?
Financial experts generally recommend keeping around $1,000 in cash at home. This amount is sufficient to cover immediate expenses without posing significant risks. In the event of an emergency, having $500 in cash on hand at home would guarantee that you will be able to pay for at least the expenses that are immediately incurred.
However, the exact amount can vary based on individual needs. Consider the following factors:
Daily Expenses: Calculate how much money you need for daily necessities like food, gas, and medications.
Family Size: The more people you need to support, the more cash you'll need.
Evacuation Plans: If you need to evacuate, consider the costs of travel and accommodation.
Storing Your Cash Safely
Once you've decided on the amount, the next step is to store it securely. Avoid obvious places like under the mattress or in the freezer. Instead, opt for a locked, fireproof safe that is bolted down. You can also spread out the cash in different locations, such as your car, wallet, and emergency kit.
Beyond Cash: Building a Comprehensive Emergency Fund
While having cash at home is crucial, it's also important to have a broader emergency fund. This fund should ideally cover three to six months' worth of living expenses. The global pandemic has shown that financial stability can be unpredictable, making it essential to have a safety net.
Lynnette Khalfani-Cox, The Money Coach®, highlights the importance of tailoring your savings to your current financial situation. "If you are making 25% less than what you were making pre-pandemic, save 25% less," she advises. This flexible approach ensures that you can still build an emergency fund without overwhelming yourself.
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