Be Honest — Do You Have Enough Cash at Home in Case of a National Emergency?
You’ve probably heard countless times that it’s important to have a rainy-day fund set up “just in case” something unexpected were to happen. But we’re now at a time when having an emergency fund is more vital than ever.
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The pandemic was a prime example of how something unexpected can have devastating effects on the economy at large and on an individual level, too. While we all hope something like that never happens again, here’s how to be prepared in case it does -- or if it's something even worse.
Why You Need a National Emergency Fund
Part of being prepared for any contingency, big or small, is having a reserve of emergency cash at your disposal at all times. When you can’t rely on accessing your funds electronically, you’ll need some legal tender to buy food, gas or other necessities.
“Whether it’s Mother Nature or some other disaster out of your control, you always want to be prepared by having some emergency cash on hand,” said Annalee Leonard, an investment advisor representative and president of Mainstay Financial Group. “Banks and ATMs may not be up and running for days after a strong storm. I recommend my clients have three to five days’ worth of spending money, just in case.”
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How To Decide How Much To Save
To decide how much to save for an emergency fund, you’ll need to ask yourself a couple of questions:
How much will I need for an extreme catastrophic event?
How much can I afford to save?
“It’s wise to have a small amount of physical cash at home for the truest of emergencies when banks are not operating,” said financial tech writer and expert, Priyanka Prakash.
Aim To Save $2K
“Individuals should be prepared to pay for essential or non-discretionary expenses out-of-pocket,” said Brett Tharp, CFP and advisory live training specialist at eMoney Advisor. “Temporary lodging or shelter, fuel, food, water and necessary medications fall into this category. This will differ for each person depending on their level of preparedness or perception of how likely a catastrophic event might be.”
To cover those costs, $2,000 is a good figure.“The rule of thumb I advise my clients is to keep $1,000 to $2,000 in cash in case banking operations are shut down due to a national emergency or catastrophe,” said Gregory Brinkman, president of Brinkman Financial in Tulsa, Oklahoma.
There’s No ‘Magic Number’ for How Much To Save in Your Emergency Fund
Despite these suggestions and what some other experts might advise, though, there’s no magic amount you should have nestled away in your emergency fund. The answer for how much you should save for an emergency situation is that you should do what feels right to you.
No matter the amount, an emergency fund is absolutely necessary — so make it a priority to build one. So if you can only afford to set aside $1,000 for an emergency fund, that’s better than not saving at all.
The Cost of Covering Necessities
Take into account that in a national emergency, inflation will rise, demand for necessities will increase and price gouging will likely ensue. With all that in mind, in addition to your regular emergency savings, you should prepare to have enough to cover the following costs in a national emergency situation (dollar amounts are estimates):
Water (10 gallons): $12-$15
Gas (20 gallons): $80-$100
Portable solar generator: $150
Battery-powered lights: $20
Emergency solar hand-crank radio: $20
Keep in mind, though, that prices for gas and water will likely be much higher in the event of an actual national state of emergency. Also note that the items in the table are emergency purchases for one person.
What To Put in an Emergency Kit
You should already have some kind of emergency kit that includes these recommendations from Money.com:
Batteries and tools
First aid supply kit
Nonperishable food
Medication
Spare clothing
How Is a National Emergency Fund Different From Other Savings?
Unlike a regular emergency fund — which should be used to cover things like unemployment, medical or car emergencies, emergency home repairs or bereavement-related expenses — a national emergency fund should be reserved for catastrophes in which you cannot use credit cards.
Regular emergency savings should be stashed in some kind of savings, money market or certificate of deposit (CD) account. Your savings for a national emergency fund should be kept mostly in cash — not tied up in stocks or real estate.
Neither type of emergency fund is meant to be dipped into or spent like disposable income, and creating one takes the same approach as that for a rainy-day fund, a nest egg or any other savings.
Should Your National Emergency Fund Be All Cash?
If you’ve managed to save up $10,000 in emergency funds over time, for example, it might not be a prudent idea to have all that money in cold hard cash sitting around your house. For one reason, it’s unsafe, and two, it might actually be more than you need.
“There is a price to putting away a large amount of money for a rainy day: That price is inflation, which has averaged about 2% per year in the last few years,” Prakash said. “To minimize loss from inflation, it’s wise to not keep too much of your emergency fund at home in physical cash. By keeping the bulk of the money in a savings account or a certificate of deposit, you can at least earn some interest on it to counteract inflation.”
Consider Opening a Separate Savings Account To Serve as a National Emergency Fund
While it’s smart to have up to $2,000 in cash in case of a bank shutdown, the rest of your emergency fund should be kept in a bank. Depositing your savings into an interest-bearing checking account or high-yield savings account can help multiply your savings over time.
“When you set aside savings — whether for a vacation or for life’s emergencies — you want to be able to get to it quickly but not keep it somewhere that’s too easy to access,” said Chris Hogan, author, financial expert and host of The Chris Hogan Show. “Your money is safe inside a bank. Bank deposits are insured by the FDIC and are protected up to at least $250,000. The best place for your emergency fund is a money market account or savings account. If you want to keep some cash at home, that’s fine, but I don’t recommend cashing out your savings.”
Consider Having Some Cash Saved in the Form of Alternative Assets
“Cash is still king across all kinds of crises. Therefore, you want to ensure you have an amount on hand to help you in case it’s necessary for purchasing some necessities,” said Jason Powell, real estate and securities attorney at EstateInvesting.com. “However, you may also want to look into trading some of the cash you have for silver, gold and other assets that may be valuable in the coming year or near future.”
How To Hide Money at Home
Many people are reluctant to keep large amounts of money in their homes for fear of theft or misplacement. Keeping cash at home is risky, especially when it’s in large denominations. A home break-in is the type of emergency you won’t have money for if your cash supply is stolen — physical money isn’t insured and it’s unlikely to be recovered. Finding secure and clever places to hide your emergency fund can safeguard the security of your assets; think of it as making a bank within your home.
Common advice is to keep some cash at your house, but not too much. The $1,000 cash fund Prakash recommended for having at home should be kept in small denominations.“Favor smaller bills like twenties because some retailers won’t accept larger notes,” she said.However, when looking to store your money in a compact fashion, larger bills in fewer quantities take up less space — so it’s up to your discretion. Whatever you decide, stash your cash away in a practical, yet unorthodox way.
“If you’re going to have cash at home, make sure it’s in a quality, fireproof safe,” Hogan said. “This is more secure than the usual suspects — under the mattress or the coffee container! Be reasonable with how much you put in the safe. It’s OK to keep a couple thousand at home, but I want you to keep the bulk of your money secure and protected in a bank.”
Other Options for Hiding Your Cash Stash
More options for hiding your emergency cash funds include:
A bottle of aspirin in your medicine cabinet
A hollowed-out book
Between the cardboard backing of a framed picture and the photo itself
Encased in weatherproof material and buried in your backyard or the soil of a potted plant
Enclosed in a plastic sandwich bag and hidden in the freezer among frozen foods
Why It’s a Good Idea To Have Cash on Hand During an Emergency
Cash can be your biggest protection against a national emergency or disaster if circumstances prevent you from withdrawing cash from the bank. It’s kind of like insurance — you pay for it hoping you will never need it. The suggested hiding places should keep your money safe just in case that emergency should unexpectedly pop up.
What To Do Right Now If You Don’t Have a National Emergency Fund
For some people, this advice is coming a little too late. Many have already lost their jobs and are in a place where they are struggling to pay for necessary expenses. If this is the case for you and you don’t have a national emergency fund, it’s important to know how to best prioritize your spending.
“The expenses that should be your priority right now are the things you need to survive,” Rachel Cruze said. “Whatever money or income you have should be dedicated to paying for what I call the ‘four walls.’ This is your food, utilities, housing and transportation. If you’re struggling to put food on the table, cut anything that is not essential like subscriptions or cable. Right now, needs come first. But crisis or no crisis, do not use debt to cover emergencies! Debt will only add to your problems.”
Brooke Barley, Gabrielle Olya, Paul Sisolak and Ruth Sarreal contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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