The ‘Cash on Hand’ Dilemma: How Much Is Too Much?

The ‘Cash on Hand’ Dilemma: How Much Is Too Much?

Trent Hamm

The idea of having “cash under the mattress” has a lot of appeal to many people. After all, cash is king and having some cash around in a quick pinch can solve a lot of problems.

An older friend of mine used to have a coffee can full of cash that he kept hidden away somewhere in his house. I’m not sure where he kept it, but I saw it produced a time or two and I couldn’t help but notice that it contained a large quantity of cash. He used it to take advantage of opportunities and to take care of things in emergencies.

A professor at the college I attended kept a false bookend in his office. It had a removable bottom and he kept about $1,500 in cash in there in $100 bills – I kid you not. He trusted me enough once to dig into it right in front of me and give me some cash to help me out in a desperate moment, an act that I still appreciate to this day because of the unquestioning generosity behind it. (I was almost completely broke and couldn’t afford the book for his class; I showed up to his first two office hours and he produced a $100 bill for me to buy the class textbook with. That’s just extraordinary generosity.)

Simply having a pool of cash around to tap into at a moment’s notice when a great opportunity appears or when disaster strikes is very worthwhile. Cash is king, after all – it solves problems.

Still, it’s hard to ignore the downside of a practice like this. Cash is untraceable, and once it’s gone, it’s gone. If you lose that cash, it’s gone. If someone steals it from you, it’s gone. If your home or apartment or car is broken into and the cash is taken, it’s gone. If your home or apartment or car burns to the ground, the money is gone.

So, there’s some risk and reward when it comes to holding onto cash. The risk is that risk of losing the money and, theoretically, the small amount of financial gain that might come from investing it elsewhere. The reward is the flexibility and opportunity that comes from having cash on hand at a moment’s notice.

Where’s the tipping point between those factors?

For me, the tipping point is enough cash to make sure my family is fine for three days during a complete natural disaster. I want enough cash to ensure that I can get my family at least 100 miles from home, feed them for three days, and house them for three days and nights. I might tap that cash for other purposes in the heat of the moment, but I replenish back up to that point.

I decided that I wanted to have enough cash available to simply handle this kind of major emergency with no questions asked. I simply produce the cash and we’re on our way.

To continue reading, please go to the original article here:

https://www.thesimpledollar.com/financial-wellness/the-cash-on-hand-dilemma-how-much-is-too-much/