How much money should you keep in your wallet? I get this question a lot. Remember, if it’s in there, it will be spent, so let’s think minimalist here.  

First, “cash” in your wallet is for stuff that comes up that doesn’t fit into your regular monthly expense categories (e.g. gas, food, entertainment, electric bill): it’s your “walking around money” A few weeks ago, I talked about how to track monthly cash usage (the speed at which you go through cash). Today, I’m talking about the minimum walking around money you should keep in your wallet at all times. 

For “walking around money” I like to look at it this way:
USER A: rarely needs cash. Pays with credit card or debit card. Always have $10 cash, just in case.
USER B: takes public transport, cabs, pays tolls or uses newstands, kiosks or food trucks – $20
USER C: splits checks a lot, goes out for drinks, dinners or lunches on short notice = $50

If you are USER B and you want to have $20 at all times, you could use your $20 in one day ($20*30 days = $600/month) or one week ($20*4 weeks/month = $80/month). Your cash USAGE is very different, but “walking around money” remains at $20. It’s all about pace!

REMEMBER: your cash USAGE (the pace you spend your Walking Around Money) should be no more than 5% of your HOUSEHOLD take home monthly pay for the month. 

Let’s do some math, shall we?

If you’re monthly HOUSEHOLD take home pay (your paycheck after taxes) is $5000, then a maximum of $250 per MONTH should last you just fine for “walking around money.”  If your household has two adults, and your household monthly take home pay is $5000 then your “walking around money” total for the month should be no more than $125/adult for a total of $250 or 5% of your monthly take home pay.  

Make sure you have a minimum in your wallet based on user type (A, B or C above) and take cash as you need it during the month up to that 5% ceiling.  STOP when you hit that 5% ceiling for the month (sorry, but you’re going to be pretty slim on cash until the next month).   You will learn how to pace yourself on cash if you STOP at your 5% ceiling per month.

If you pay for certain monthly expenses in cash, say, dry cleaning, figure out how much you spend on dry cleaning each week or month and take enough cash out to cover it in addition to your Walking Around Money. They are separate expenses. If you spend $50/month on dry cleaning, take out $50 each month and use it for your dry cleaning. Try not to keep it in your wallet all the time because you may end up using it for something else. Take it when you need it for dry cleaning.

Don’t forget to watch for upcoming blog posts on “my kids ask for cash all the time” and “using cash instead of credit cards.”  Visit my blog for my other articles on housing costsgasoline usage and credit card debt.