Yesterday I blogged about an economist's answer to the question of how much cash one should carry, which was a surprisingly large amount; almost $500. His conclusions factored in the time required to visit an ATM, the interest lost by withdrawing cash, and the potential loss by theft.

However, I doubt that anyone I know carries even a small fraction of this amount. I rarely have more than $40 in my wallet. Reading various posts about this topic, one message showed up time and time again, that carrying more money would tempt one to spend more money.

I'm very skeptical about this conclusion, however. I believe that we are much more likely to overspend with credit cards than cash, which is why retailers are so anxious for us to use plastic rather than greenbacks. I know that, for me, paying with cash makes the transaction much more tangible. Every time I pull out a $20 bill, I think to myself just how much work I'd done to earn it. This never happens with a credit card.

So while I would be uncomfortable carrying $500 around all the time, I would be well served if I used cash more often. I know it would cause me to think twice about ordering that steak, novel or CD.

How much cash do you carry? How often do you hit the ATM? Are your habits the most efficient? If you carry less than $500, the answer is no.

You may be surprised to learn that this question has generated a great deal of debate among economists. One way of approaching the question was by applying the Baumol-Tobin model of cash management, which takes into account several variables.

Professor Greg Mankiw ran the model for a person who spends $10 a day of cash, earns $60 an hour, takes 10 minutes per ATM visit, and makes 5% annual interest on his bank account. For this person, the model shows that this person should take out $1,200 three times a year, carrying an average balance in his wallet of $600. Much of this surprisingly high number is a function of the value of this person's time.

In 1995, Mankiw calculated that even the average American would be better off carrying an average of $551.05, when in fact the average citizen carried around $75.