How much cash at home is a question that has several edges: legality, security risks, physical capacity, financial convenience and financial risks among others that we will explore in this article.
There is no physical or legal limit to the amount of money you can keep at home, however, the more money you store at home, the greater the risk of loss, destruction or depreciation. In addition, the cost of risk prevention measures goes up.
When discussing or writing about cash at home, the question of why you should have it always floats up. Banks in general are much better equipped to store and manage money and protect it against risks (including inflation) than your home.
This is more an aspect of intellectual curiosity than of practical use. Next, we will calculate how much cash can theoretically be stored in a 100 m2 apartment.
Dimensions of a 100 USD bill
More than 40% of all the money that exists in dollars is denominated in U$100 bills, which have the following approximate dimensions in mm (length x height x thickness): 156 x 66 x 0.1.
Number of banknotes that fit in 1 cubic meter: 885,567
Average apartment volume
The volume of an average apartment is approx. 95 m2 usable area x 2.5 m average height = 237 m3. An average apartment has an internal volume of approx. 237 cubic meters.
Multiplying the m3 of the apartment by the number of bills per cubic meter we obtain: 210 million bills.
In conclusion, the following is the amount of money that you can physically have at home, according to the denomination in USD (it is not very different in EUR):
|DENOMINATION||MONEY SAVED||IN LETTERS|
Legality and taxes
This blog is read by people from more than 100 countries on 5 continents; each country has different legislation, however, in general:
- There is no explicit limit to the amount of money you can store at home.
- From a tax point of view, as long as the money is declared, the tax authorities have no objection to you keeping as much money as you like at home and paying taxes on it.
- There can be problems with having undeclared money at home when it re-enters the financial system, as it may appear to be an occasional gain. This event is in the higher echelon of taxation, such as inheritances and lotteries.
In general (there are exceptions!) tax collecting institutions tax income (the income of money) rather than the possession of money. It is possible that if you have 10.000 USD you are in a different tax bracket than if you had 1’000.000,-. However, you are taxed on what you earn, not on what you have.
The most obvious security risks are:
- Robbery: Someone enters your home and violently takes the cash you have in your safe at home
- Theft: A person steals the money you keep, without using violence.
- Moisture deterioration
- Pest damage: Most banknotes are made from cotton paper. While they are very durable, they suffer a degree of deterioration over time.
- Loss: This is probably the most frequent security risk of all. You have your bill and decide to hide it so well that even you forget where you stored it. Don’t underestimate the risk of loss, which grows as you use more hiding places to store your money.
- Profit foregone: interest or yield foregone by keeping the money at home
You can cover yourself against all these risks. You can buy a safe to prevent burglary and theft, but the entire safe can be stolen.
Keep the bills in the freezer to avoid the risk of fire, but your mom may throw the baggie in the bin thinking it was an out-of-order loaf of bread.
You can fumigate the bills so they are not affected by termites or weevils.
What you should keep in mind is that all measures have a cost, in addition to the cost associated with the risk itself. For example, if I keep my money under my mattress, maybe there is a 1% risk of loss. If you keep USD 10,000, this value would be USD 100.
Financial risks and convenience
In principle, there are two important financial risks to consider:
- Inflation: Loss of purchasing power of stored money. The solution to this is to invest some of the saved money!
- Devaluation: Loss of value of a currency against other currencies.
In the following graph, you can see the loss of purchasing power of a $100 bill over time. In the first year, your bill can buy the equivalent of 100, naturally. After 23 years it can only buy the equivalent of 50,-
Note: we assume constant 3% annual inflation. The real value is different for each currency.
At 50 years of age, it has practically lost three-quarters of its value.
In conclusion, saving money makes you subject to loss of purchasing power, regardless of the currency. Naturally, there are currencies that are subject to inflation rates much higher than 3%, such as the Venezuelan bolivar for example.
The higher the inflation rate, the less money is worth storing at home.
In my opinion, the phenomenon of devaluation is more difficult to forecast and deal with than inflation, since it is totally unpredictable. The percentage of devaluation or revaluation can oscillate sharply in short periods of time, as we can see in the following graph showing the relationship between EUR and US dollars:
In the central part of the graph, you can see that by start-2018 one (1) EUR had a price of about 0.80 USD. By the end of 2022, each dollar was worth the same as 1 euro.
Another way to look at it is that in 2018 I could buy 80 EUR with 100 USD. In 2021 you could buy the same 80 EUR for only 80 USD In other words, THE EUR lost almost 20% of its value against the dollar in only 4 years.
Inflation + Devaluation
Although inflation and devaluation are different and independent phenomena, their effect is cumulative.
Taking the above examples, if you kept money at home in Colombian pesos from 2010 to 2020, you would have had a devaluation loss of more than 55%, in addition to a 19.4% loss of purchasing power of the dollar in this period. Therefore, the loss was almost 75%.
Loss of profit
Corresponds to the money you stop earning to the extent that it does not produce interest, yields or appreciation. This amount depends on the rate you can earn.
Conclusion on how much cash at home
There is no physical or legal limit to the amount of cash you can keep at home, however, the more money you store at home, the greater the risk of loss, destruction or depreciation. In addition, the cost of risk prevention measures goes up.
The most frequent risks to which the money you store at home is subject are:
- Moisture deterioration
- Deterioration due to pests
- Inflation + Devaluation
- Loss of profit
- Tax risk due to change of tax category (occasional gain, inheritance…) taxed with higher taxes.
A reasonable measure is to keep the equivalent of 1 to 2 weeks’ worth of household expenses in cash. This is enough to allow you to pay for the basics in the event of a temporary breakdown of financial systems or a curfew or quarantine, but not so much that you lose excessively because of the risks involved.
The higher the inflation and currency devaluation, the lower the cash you keep at home.