The simple answer is that during recessions people tend to lose their jobs, and when you don't have cash coming in for a while it's very important to have savings available to spend. That buffer could save you from losing your home or worse.
Storing cash savings in your home can be a bad idea for several reasons: Theft Risk: Cash is a tangible asset that can be easily stolen. If your home is broken into, the cash you've stored there is at risk, and unlike bank deposits, it is not insured against theft.
Generally, single individuals or families with a single income should save at least six months of expenses, experts say.
Don't use funds that you need soon.
Make sure you have the time horizon to weather any losses, or hold your cash in stable assets like an interest-bearing savings or checking account, money market fund, or CD—especially if you're expecting a large expense or purchase in the short-term.
How much is too much? The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.)
While it is legal to keep as much as money as you want at home, the standard limit for cash that is covered under a standard home insurance policy is $200, according to the American Property Casualty Insurance Association.
Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
In a recession, it's smart to preserve your capital by investing in safer assets, such as bonds, particularly government bonds, which can perform well during economic downturns.
“While it can be tempting to withdraw all your funds from a bank and keep them at home, banks are typically more secure and offer protection against theft or loss. Plus, keeping money in a bank allows for easier access to funds if needed for emergency expenses or unexpected bills.”
Ongoing stock market volatility and record inflation are fueling predictions of a recession. If the predictions are correct, both businesses and individuals will be looking to protect their liquidity and financial security. And one way to accomplish that is by having cash on hand.
The Bottom Line
CDs are a comparatively safe investment. They can provide a stable income regardless of stock market conditions when they're managed properly. Always consider emergency money that you might need in the future when you're thinking of purchasing a CD or starting a CD ladder.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
YOU ARE ALLOWED TO CARRY AS MUCH CASH AS YOU WANT OUT OF AND INTO THE UNITED STATES. To summarize up front: no, you are not restricted to traveling with sums of $10,000 or less. In fact, you could travel with a checked bag stuffed to the brim with cash — as long as you declare the amount beforehand.
U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government guarantees timely payment of interest and principal, backed by its full faith and credit.
Jesse Cramer, associate relationship manager at Cobblestone Capital Advisors, believes less than $1,000 is ideal. “It [varies from] person to person, but an amount less than $1,000 is almost always preferred,” he said. “There simply isn't enough good reason to keep large amounts of liquid cash lying around the house.
You can deposit $50,000 cash in your bank as long as you report it to the IRS. Your individual banking institutions may also have limits on cash deposit amounts, so check with your bank before making large cash deposits.
As long as the source of your funds is legitimate and you can provide a clear and reasonable explanation for the cash deposit, there is no legal restriction on depositing any sum, no matter how large. So, there is no need to overly worry about how much cash you can deposit in a bank in one day.
The Key to Keeping Cash at Home Is Protecting It
It's not going to do you much good to keep a bunch of cash in your home if you aren't going to protect it. Removing some money from a bank vault and stuffing it into a shoe box is an excellent way to wind up having a bad time.
Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.