Posted by Mike Smith :: October 1, 2008 @ 9:22 am

The benefits of building an emergency fund have been covered in depth both on the Lending Club blog and in many other personal finance advice forums. Using that lesson on a smaller scale, particularly when traveling, can afford many of the same benefits.

A few weeks back I took a serious road trip. In the course of two days I drove about 1,600 miles. The good news was that my car averaged almost 35 miles to a gallon and gas prices have receded from their recent highs. I was also fortunate not to run into any roadside troubles, though I was prepared for such an event. You may feel secure knowing that you are traveling with a credit card. Nearly any emergency along the way could be covered, if necessary. Even so, I always like to travel with sufficient cash to last for a night in a hotel and at least a day’s worth of meals.

When dealing with such a short timeframe, the few negatives of holding money in cash really don’t come into play. You probably aren’t worried about the interest you’ll lose on having a few hundred dollars out of your interest-bearing accounts for a week or two. If you try to normally live without using cash, it’s important to deposit the money back into an account once you’ve returned home or reached your final destination. It might be tempting to slowly spend the cash until it’s gone, but if that’s not your normal spending method, you’ll probably end up wasting some of it.

The benefits of having cash when traveling are that cash is almost universally accepted and many fees can be avoided by having sufficient cash on hand. Among these fees are: the interest you would pay on credit card charges if not paid off in full, ATM fees for withdrawing money from different banks, or wire transfer fees to obtain money from a friend in a real emergency. Not all of these fees would apply to everyone or every situation, but all are feasible in certain cases.

The days of cash giving one a sense of security are largely over. In many ways, cash is one of the most insecure forms of money. But for certain circumstances, such as a mini emergency fund when traveling, cash still reigns supreme. So before you have to rely on credit for an unexpected expense on your next trip, think about carrying some cash to handle that situation.