It’s probably one of the very first personal finance tips your parents ever gave you: Always carry cash with you.
While we can misinterpret this age-old advice as more of a generational preference, it does have some validity. After all, there are many advantages to having cash in your wallet. For one, having to physically count out cash to pay for a transaction gives you a better understanding of your expenses. Cash can also be helpful for emergencies.
For example, you may find a provider that does not accept credit, or you may have a low limit on your credit card, in which case cash is a reliable alternative.
The big question that remains is: how much cash should you have? wear every day? Select spoke to a few personal finance experts for advice and found that their answers varied, from carrying as much cash as you want to spend that day to having less than $100 in your wallet. Ultimately, as with most personal financial advice, you must decide what is best for you. (But your mom will probably sleep better at night if you have at least $20 with you for emergencies.)
Carry at least a day’s worth of expenses
It’s a good idea to carry at least a day’s worth of expenses in cash, suggests Brenton Harrison, a Tennessee-based CFP at Henderson Financial Group.
However, this may vary depending on your daily spending habits, Harrison recommends thinking about how much money you depend on to make it through your normal 24 hours. This may include travel expenses such as paying highway or parking fees. Note that some shops or cafes are still cash only or do not accept certain credit cards.
And if you’re venturing out more now that things are opening up again, remember that cash for social events can come in handy, like a hairstylist or a babysitter, Harrison says. Whatever your reason, having enough cash to get you through the day can help.
With today’s digitally-centric world making it easier than ever to pay with credit cards or with apps like Apple Pay, Venmo, and PayPal, there really isn’t much need for cash these days, argues Shon Anderson, an Ohio-based CFP and Chief Wealth Strategist at Anderson Financial Strategies. We’d recommend having between $100 and $300 in cash in your wallet, but also having a reserve of about $1,000 in a safe at home, Anderson says.
Depending on your spending habits, a few hundred dollars may or may not be more than enough for your daily expenses. Regardless, the idea here is to have some spare cash on hand in case you need to pay for something but can’t use a card or app.
Cash used to be king, says Anand Talwar, manager of deposits and consumer strategy at Ally Bank. But cash is losing its luster in today’s world of unlimited digital payments. However, Talwar agrees with Harrison and Anderson that it is useful to have some cash in your wallet. He recommends keeping the amount at or below $100 so that it serves as a budgeting tool.
That amount gives you the psychological boost of having cash in your wallet and makes you think twice about your spending, Talwar
adds. You might also choose to pay with cash when shopping at a local store, as many prefer cash over cards to avoid the fees. This could be an even greater incentive to carry cash when we emerge from the pandemic.
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