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When I was in college, one of my co-workers at my part-time, on-campus job gave me a funny little gift that I use to this day. What was it? It’s called a “wallet fairy.” According to the note that came with my little talisman, you put it in your wallet and “you’ll never be out of money when you need it.”<\/p>\n
I can’t honestly say that the “magic” has been foolproof. I believe I’ve mentioned on a couple of occasions the time I didn’t wash my hair for a month because I couldn’t afford shampoo. And I distinctly remember crying after going to the grocery store on a couple of occasions because I didn’t know how I was going to pay my bills after buying food. But I guess if the magic were foolproof, this fool wouldn’t have learned her lesson and started digging her way out of debt, right?<\/p>\n
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<\/a><\/div>\nBut you know what? National Preparedness Month<\/a> (a.k.a. “September”) may be over, but it’s always a good idea to consider your plans if an emergency occurs. And after the flash flooding we saw this year in Phoenix, I am thinking a lot more seriously about what it would be like to be out of money when I need it. I’m starting to think that it’s important to keep cash readily available, but I wanted to really sort out why and how much and where. So here goes\u2026.<\/p>\n To be clear, I’m not talking about keeping an extra $20 in your wallet (not that that’s a bad idea). I’m talking about keeping a significant amount of cash on hand in case of emergencies — in the hundreds or thousands of dollars. Here are the pros and cons for doing so that I can think of:<\/p>\n Pro: Out of sight, out of mind.<\/strong> Even if you put your emergency fund in an online-only account such as Capital One 360 (formerly ING)<\/a>, at least it’s there. You receive bank statements reminding you of its presence. Maybe it factors into your Mint net worth. Stashing actual physical money somewhere out of the way means you are less likely to think about it (and thus, be tempted to spend it) unless there’s a true emergency.<\/p>\n<\/li>\n Con: Not earning interest.<\/strong> If you invest your money, you are (hopefully) earning interest faster than inflation can erode the value of your cash. The “common wisdom” is that inflation is about 3 percent annually, so you should aim to beat that benchmark, taking into account things like diversification and your own risk tolerance. Even parking your cash in a savings account with their interest rates of 0.95 percent or less (based on this week’s savings account rates) is better than nothing, right?<\/p>\n<\/li>\n Pro: Peace of mind.<\/strong> Cash can’t be garnished like a paycheck or bank account, and it isn’t easily traced. For some people, having access to money that flies under the radar, so to speak, may make them feel more secure.<\/p>\n<\/li>\n Con: If it’s gone, it’s gone. <\/strong>See above: Cash isn’t easily traced. If you lose the money, it gets destroyed, you are robbed, etc., you may have very little recourse.<\/p>\n<\/li>\n<\/ul>\n Related >><\/strong> How Diversification Reduces Risk<\/a><\/p>\n<\/span>Should You Keep an Emergency “Cash Stash”?<\/span><\/h2>\n
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