Mitch's Mailbox

June 20th, 2024

How Much Actual Cash Should I Keep At Home?

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Lucille M. from Birmingham, AL asks: Hello Mitch, I know about the importance of keeping about a year’s worth of income needs in cash. But what’s your take on having some of that cash at home, in a safe, or some other secure place? Are there guidelines on how much physical cash to keep close by? Thank you.

Mitch’s Response:

Thank you for sending your question, Lucille. You ask an interesting question and one that’s especially a consideration for older generations.

My position on your question is that people really shouldn’t keep much cash in the home. There are a few reasons for my perspective here. The first is that keeping high levels of cash at home raises the risk of losing it, forgetting about it, or even having it destroyed by an unexpected incident like a natural disaster or a fire. This risk can be mitigated by keeping the cash in an insured account at a bank.

Another risk of keeping too much cash at home has to do with estate planning. If family members or other heirs discover sizable amounts of cash in a home, the cash becomes part of the estate, which can invite complications and even disputes or disagreements—especially if the cash is not specifically mentioned in the will or other legal documents. In a sense, the cash is ‘unofficial’ since it has no ownership records, which can result in accounting problems and lack of clarity when it comes to distribution.1

How to Build an Effective Retirement Portfolio in a Volatile Market

It’s crucial to focus on proper financial planning, particularly when creating a retirement portfolio. By investing wisely and documenting your assets clearly, you can ensure a smoother estate planning process and avoid the pitfalls of unaccounted cash.

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A final reason I do not advocate for keeping too much cash in the home is opportunity cost. The proverbial ‘money under the mattress’ becomes less valuable with each day it’s not earning interest, as inflation reduces the purchasing power of uninvested cash over time. Deposit rates at banks are not very high at the moment, but many are paying yields in line with current inflation rates—which at least maintains purchasing power on that money. There are also other options for earning higher levels of interest, like money market funds and CDs, where people can earn a real return that’s also very low risk.

Going back to your question, I agree that having one year’s worth of cash available for emergency purposes is a good idea. Having that cash in an interest-bearing savings account or parked in money market funds both works well, in my view. Beyond the years’ worth of cash, I think people should invest their assets in accordance with longer-term growth, income, and liquidity needs. Keeping cash at home—or having too much uninvested cash—could mean sacrificing considerable wealth generation that could take place over time.

To help you further with investment planning, especially for those near retirement, I recommend reading our guide, 7 Secrets to Building the Ultimate DIY Retirement Portfolio.3 This guide will explain investing basics and give insight on the right tools to help set up the portfolio that meets your retirement goals, including:

• Accurately forecasting your retirement income needs
• The two phases of determining your asset allocation
• Developing an investment discipline that allows you to get good results over time
• Avoiding self-sabotage—what you need to know

If you have $500,000 or more to invest, get this guide to learn our ideas on the step-by-step process of building and maintaining a retirement portfolio that will potentially help you reach your goals and enjoy a secure retirement.

Disclosure

1 NY Times. June 8, 2024. https://www.nytimes.com/2024/06/08/business/cash-at-home-retirement.html

2 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.

3 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.

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