Random Thoughts about Cash Reserves

The cash reserve addressed here is the real green stuff you can hold in your hand, stored in your home, or nearby.  Having it in a bank safe deposit box won't help you if the banks are closed -- it may also be illegal in your state.  This is your no-BS emergency-nothing's-working fund. It's not your mad money and is separate and above a savings account or other prudent reserve.  That's not to say that if your 'emergency' is being laid off from work you couldn't use it -- that's an emergency in my book!  This is for the times when ATM's are down or empty, stores will only accept cash and you need something desperately, or you still have bills to pay regardless the emergency. Many websites have addressed this subject well, at least in theory. Just thought I'd add a few comments on the practice of a cash reserve.

First is deciding how much should be in your reserve. What's reasonable or affordable is different for everyone. It's based on your monthly requirements, how much income you have and how much cash you can afford to have sitting on the sidelines. Sometimes it's 6 month's, but shooting for 1 month-worth is a good starting point. If that's more than you can do, go for at least a few hundred dollars - two hundred is certainly better than nothing.

I began in 2009 when I received a small bonus at work. The gov reserved 20% for taxes, so I took 10% of what was left and turned it into my first cash reserve 'payment' to myself. It was a few $50's and a $20 or two, for about $200. I tried to faithfully add another $20 each pay period until I had a enough to cover a month's worth of bills and necessities.

Eventually, I had my reserve. I have left it alone in its secret place. Now I realize that cash, like food storage, should be rotated. Since starting the cash reserve, several bills have actually changed, including the $10's and $20's. That's one more task to add to the list: rotate old cash reserve bills. Seems odd, but a bunch of old bills could signal to smart people that you started preparing for hard times years ago, and get them wondering what else you have socked away.

I've also been thinking about denominations. What is the right balance of denominations?  For discrete storage, larger denominations mean a smaller stack to store. If used during a period of higher prices, larger bills would be more convenient. If using them in a crisis when prices are very fluid, larger bills will be more expensive to use. The likely scenario is a $10 item becomes a $20 item if you only have a $20 and the seller claims to have no change.  Some mix of small and larger bills seems to make sense.  It might make sense to have 10% in each of $5's and $1's bills (maybe only 5% in ones...), 20% each in $10's, $50's and 100's and the rest in $20's. For $1000, that would mean $400 in 130 small bills (85 bills if keeping only $50 in one dollar bills and replacing with $10's)  and $600 in 16 bills for your twenties and larger.  That leaves a fairly small physical target to stash for a rainy day.  

As for where to stash, it's not an easy task. Probably should not be in the bed or bathroom as apparently robbers look there first.  Stash it in a water (fire?) and bug proof container of a type similar to its resting/hiding place. If that's near a lot of metal, use a metal container. Don't let it be the only metal container in the room full of wood and plastic.  Above all else, it needs to be in a place you will REMEMBER. A cash reserve you can't find in an emergency is the same as not having one.