How Much Cash Do You Need?

Guide to determine how much cash you should keep on hand


Piggy bank


Why do retailers love cash?


We all know what cash is. We carry it in our wallets… or wait… do we? If you’re like most folks, you may only carry around a debit or credit card. Or, maybe you just rely on Apple Pay.


But, while we may not always carry cash, retailers sure wish we did.


Cash is a broad form of payment. And, if you can remember our pre-pandemic days, “cash only” establishments were quite popular.


Why is that? The reason businesses, especially local ones, love to be “cash only” is because cash is dependable and reliable—simply put. Credit cards can be declined, checks may bounce… but cold, hard cash is cold, hard cash.


Think about it: when retailers receive your cash, they’re getting their payment at that moment. They’re not waiting for your check to clear and, just as important, they don’t have to pay a fee to credit card companies. That’s right: even though it’s free for you to swipe your plastic at your fave establishment, that boutique or restaurant or shop is required to pay between 1.5% and 2.9% for every credit transaction at the register. As you can image, this eats away at their profits, only to add up over time. Understandably, Publix can afford the fee. But the Mom and Pop Shop on the corner? Yeah, they’d prefer your cash.


Fast forward to the Covid days, and we’ve put the kibosh on most cash-only rulings, given our growing concerns about spreading Covid.


That said, despite the growing popularity of electronic banking, cash undoubtedly remains important to the economy and our finances. The value of cash is tied directly to inflation and impacts governmental economic policy.


So, let’s just say cash isn’t going anywhere anytime soon.



Do I actually need cash?


Remember that emergency fund we keep telling you about? Well, that fund is heavily dependent on cash. It’s essentially a reserve of cash to cover you for a period of expenses in case of an emergency.


Before you ask, no, it’s not for fun expenses!


In simplest terms, if you have enough cash on hand, you won't have to worry about how you'll pay your immediate bills.


Bottom line: set up an emergency fund because it’s never too late to get one going and growing! We recommend having two to three months' worth of expenses saved up, in case sh!t hits the fan!




Pros of keeping cash on hand


The cash game isn't only cool for retailers. You, too, could benefit from more green in your pocket. (Now that's an understatement!)


  • Investment opportunities: Cash is liquid. Meaning, it’s money you have to put little effort into moving. You don’t have to sell stocks to access it or wait until retirement. With “liquid” cash, it’s easier to take advantage of random, immediate investment opportunities. You can quickly invest that cash in the stock market with, relatively, no hassle. This way, you can take advantage of market pullbacks. *cough* COVID-19 recession *cough*


  • No internet required: Ever wait in an incredible line in Starbucks just for your app to crash when you’re trying to pay? Yeah, “digital” cash is great and super convenient—until it’s not! You can easily access cash without fancy technology or passwords. This is great for when time is of the essence… or if you're anticipating an apocalypse or internet crash.


  • Ease of use: A large part of the appeal of cash is its ease. No internet, swiping, fees, transfers, or third-party oversight necessary. Just grab a wad of cash from your pocket, and you’re set!


Cons of not having enough cash on hand


  • Crime: Cash can make you a target for robberies and pick-pocketing. While it’s never fun to have a wallet stolen, it’s easier to recover cards than to recover cash. Yeah, we know it’s a headache to contact the company, cancel a card, and register a new one. Moral of the story: don’t make yourself a target. Keeping cash in your wallet or in your house is certainly not a bad thing! But just do so appropriately (i.e., don’t leave a wad of cash out if you’re hosting a party!).

  • Disorganization: Admit it, you’ve stuffed a few bills into a bag or pocket and have come home only to discover you lost some (or all) of it. You brush it off as “misplaced,” thinking “it’ll turn up one day”. And it never does. It’s okay, you’re not alone! The good news? You can avoid this kind of disorganization with digital banking! (And, remember that Pocketnest helps you keep all of your accounts in one place, so you can always see a simple snapshot of all your money—cashola, investments, you name it!)


  • Missed opportunities: If your money is in cash, that means it’s not earning interest or producing gains. Remember: the worst place to invest your money is under your mattress! Snapping up this interest now can have profound effects on your future finances. #EarlyRetirement! Don’t know where to get started? We’ll help you dip your toe into the market with 10 Investment Tips for 20-Somethings.



What should I do with my cash?


Ah, the age-old question. It's also kind of a loaded question. We recommend logging into Pocketnest and checking in on your financial plan. (Before you “X” out of this screen, remember: it only takes 3 minutes a week to stay on top of your plan in Pocketnest!)


To know what to do with your cash, you need to make a plan for where the next dollar goes. You’ll want to ensure you’re tackling that debt, of course, and have a retirement savings plan set up.


Got those items set? Awesome! Now, you’ll want to be sure you’re taking advantage of any match your employer offers for contributing to a retirement account. This cash is money your employer has already set aside for your compensation package; it’s literally free money!


(Psst, savings accounts that yield substantial interest are the most important type of accounts to continuously max out on, early in your adult life and professional career. Learn about how to get started on your 401k if you're feeling a little lost.)


When you’re ready to roll your sleeves up, you can also dip into the market and learning how to invest some of that cash.



What NOT to do with your cash


Don’t skimp on savings because of inconveniences. The majority of the time, it will only take one interaction to put money into a savings account that you don't need to touched for a long, long time. This goes for stocks, too.


It's a myth that you must constantly move money in stocks and trade equities. In reality, while you should monitor your accounts and equities, it can be best to just let the money sit there and grow. See: it’s not that much effort, so don't keep cash out of laziness. A few minutes of money moving can lead to a long time of money growth.



Finding the right balance


Just like each of us is unique, so is our personal financial plan. (Ahem, that’s why Pocketnest gets to know you and your financial sitch, so we can offer you super-timely advice that’s custom to you.)


As far as how much cash you should carry around? It’s all about finding the right balance for you. Remember, this also may change over time, so be sure to periodically update your financial plan.


Now, pop into Pocketnest and let’s get this party started!