Why you should save money under the mattress
Saving money in a bank account does have its downfalls. Of course you get interest but you don’t get these perks of saving money under the mattress:
Convenience
Whether it is metaphorical or not, keeping your cash “under the mattress” means it is readily available at your house. If you live far from an ATM and have a need for cash to pay for produce at the farmers market, or give the kid who mows your lawn, it makes sense to have more cash reserves than the urban dweller.
I live an hour away from a bank for example, and try to go to town every other week, so keeping cash at home is the norm. You don’t want to spend $5 worth of gas to withdraw $20.
Free access
Don’t you hate ATM fees? They are so annoying. Most banks will charge you a fee to access your cash outside of their ATM network. It is usually a dollar or two, although when you only need $20, that is a hefty price to pay to get back the money you’ve been lending the bank for free. Keeping money under the mattress can save you a bunch in ATM fees.
Emergencies
Keeping cash under the mattress also has you covered in case of an emergency. If you need to leave suddenly to help a family member in need, you’ll save yourself a trip to the ATM. In case of a power outage or other extreme emergencies that may prevent the ATM from working, you will have reserves to buy food and other vital necessities while it lasts.
Peace of mind
When I don’t have cash, I feel uncomfortable. You surely can get by with your credit card and navigate almost everywhere, but sometimes you will end up in a cash only situation. Worse, if you are with friends and unable to cover your share! Keeping a little bit of cash handy will ensure you are always ready.
Saving money under the mattress has a cost
Now that you know the pros of saving money under the mattress, there are also some cons you should be aware of:
Interest
The main advantage of keeping your cash at a bank is you can save and invest it, whereas keeping money under the mattress doesn’t earn you any kind of interest. How much are we talking about? Well, if you keep $2,000 in cash for most of your adult life, instead of putting it in a 3% saving account, you will pass on $2,919 worth of interest after 30 years. That number gets bigger if you invest your $2,000 and get higher returns. Not allowing your cash to grow and compound can delay your retirement plans by several years, so you would have to work longer.
Furthermore, every year inflation will erode the value of your cash. That means next year, you won’t be able to buy as much as you used to with your money. Having it earn interest, even with the low rates of saving accounts these days, will help you at least keep up with inflation and not lose money.
Safety
Unless you have a safe at home, if we are talking about literally keeping money under the mattress, you are making it easy for anyone entering your house to access your cash. And I am not just talking about burglars. It could be your kids reaching for a $20 bill when you refused to give it to them. Or their friends accidentally finding your secret stash while playing hide and seek. As long as the money is in the house, it will never be 100% safe.
Logistics
Until I got a safe, I found myself counting my cash too often, worried some of it might have disappeared. I had times of doubt, where I couldn’t remember if I had spent it, or if it had disappeared. And because I had several hiding places, I even forgot about some of them, and then found the cash a few months later. It is a messy system. If you are going to save money under the mattress, at least keep a record of how much you have and where.
Convenience
As mentioned above, I am quite a messy person. And when I use cash only, I have no idea how much I spent, or where the money went, which makes it hard to track my expenses. Using a debit or a credit card instead is so much easier. You just swipe it, and your bank sends you a neat statement, telling you how much you spent. You can export the data into a budgeting software like Mint, and it will order it and make some awesome pie charts about your spending. You can challenge a transaction and get purchase insurance.
When using a credit card, you do not need to carry coins and bills, which are bulky and dirty. One card does the job. You are also missing out on cash back and rewards offered by credit cards if you go cash only.
While there are definitely some advantages to saving money under the mattress, keeping too much cash in your house can be dangerous, and the lost interest can have an impact on your total nest egg in retirement. So you should keep a small sum, and invest the rest to make your money work hard for you.
This is a guest post from Pauline of InvestmentZen.com
Photo: Boston Magazine