Having an emergency fund in a savings account is a basic part of personal finance, but what about the traditional "cash under the mattress" approach? Is there still a place for a stash of paper money in a world of ATMs and online banking?
Why have a stash of cash?
Imagine for a moment that some crisis (blizzard, earthquake, etc.) cuts off power to your hometown for a week. With no electricity, you won't be able to use an ATM -- and if a crisis is severe, it's unlikely that the banks will be open. Without power, you won't be able to use credit cards, either; the only cash you'll have in this situation is whatever you have on hand. Could you and your family get by for a week on the cash that's in your wallet right now?
How much cash should you stockpile?
If you're now sold on the idea of keeping some cash at home, the next step is to figure out how much to keep. On the one hand, you want enough cash to get you through a serious emergency; on the other hand, the cash you keep at home isn't earning interest or other returns for you, and if the money is stolen or destroyed, it's gone forever.
At a minimum, you'll want to have enough cash to keep your household going for three days. Since a serious crisis might mean an evacuation on short notice, it's a good idea to have enough money on hand to buy gas, food, and a couple of nights at a motel for your whole family. That might sound far-fetched to you, but any number of disasters, from hurricanes to wildfires, can lead to forced evacuations.
For most people, $1,000 is enough to get them and their families through a short crisis. If you have a big family or unusual needs, such as a medical condition that requires special treatment, you'll probably want to save more; single folks without dependents can likely get by with a little less. If $1,000 sounds like a lot to you, start with $100 and build it up a few dollars at a time. That much cash won't buy you a motel room, but at least you won't starve. Better yet, make cash only one part of your home emergency kit.
Where to stash your cash
Keeping money under your mattress might sound like a good idea in the movies, but in reality, it's one of the worst places to hide your cash. Not only is it the first place any burglar would look, but your mattress won't protect your money from fire or flood.
The best place to keep cash at home is a concealed fireproof and waterproof container such as a lockbox or safe. Safes are more secure, especially if you have one that's bolted to the floor or too heavy to move, but heavy-duty safes can also be exceedingly expensive. A lockbox or small safe tucked away in a discreet location can be nearly as secure and a whole lot cheaper.
A diversion safe is a container designed to look like something else -- from a mayonnaise jar to an old boot. These devices are cheaper than real safes and hard for thieves to spot, but they generally don't come with any locking mechanism (and they probably aren't fireproof, either). Keep in mind that masked burglars aren't the only concern -- if your kids bring friends to your home for a sleepover, for instance, your hollowed-out Bible full of cash might just be empty the next time you check on it. It's best to use something that's truly secure so you can be sure your cash will be there if you need it.