How much cash (beyond emergency fund) do you keep on hand?

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bernie5151
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How much cash (beyond emergency fund) do you keep on hand?

Post by bernie5151 »

Hi Folks,

Question: In addition to our emergency fund (7 months), my wife and I think we need some amount in cash in our checking account...so we have a buffer for monthly expenses. For example, if we want to buy a piece of furniture, we don't want to dip into our emergency fund for that. In my mind, a discretionary purchase like furniture is not a true emergency and thus not what the EF is for. Do folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF? We were thinking $10-20K. On the other hand...we don't want to keep TOO much in cash when it could otherwise be invested. Thoughts?

Context: We're trying to figure out how much to invest each month, but it's difficult to do so until we figure out how much non-EF cash to keep on hand.

Thanks!
skylarkguy
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by skylarkguy »

I have the equivalent of one month of emergency fund in my checking account, so in an emergency, I have cash in checking + 6 month emergency fund = 7 months cash. As an example, if one month of expenses is 5k, I have 5k in checking and 30k in emergency fund (35k total).

For a larger purchase that isn't an emergency, I'd probably think about a personal loan if the amount of the purchase was going to exceed more than 2 months of emergency fund (10k in my example). My wife and I would probably try to save extra money for a large purchase we plan to make, though.
H-Town
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by H-Town »

Generally we don't keep cash in checking account. We have cashflow surplus each month. We are dual high earners and we have low expenses. If we have a big ticket item purchase, our monthly cashflow can usually cover it. Then I look at the trend of average cashflow surplus in a year and decide how much the automatic investment to taxable accounts should be. If we have unexpected cash inflows (bonus or other income), I just manually put it in taxable accounts.
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squirrel1963
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by squirrel1963 »

This begs the question of what cash is exactly. We try to keep the amount of Cash in the checking account down to a minimum, have most of the "cash" in short treasuries, which can be liquidated very quickly if needed.
I'd say 10k-20k cash in checking is reasonable, or less if the cash flow is predictable.

Aside from this my current thinking is that there is no difference between "cash" and EF, and that a rolling ladder of treasuries can serve both purposes. It can be liquidated if needed for an emergency and unspent matured bonds are reinvested in the ladder.

So with this kind of approach, and with a ladder of treasuries maturing every 2 months for instance, you'd only need to keep 2-3 months worth of living expenses in checking.
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camillus
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by camillus »

My family keeps about 3x our monthly expenses in checking. We came to this because we’ve had a rewards checking account that pays interest up to a certain amount. We try to keep that amount in checking.

I suppose our current emergency fund is ~40k of I bonds, a month of free credit card float and two incomes, and a HELOC.

I wouldn’t worry too much about dipping into healthy emergency fund. It’s not a big deal. Reduce your scruples.

I recommend YNAB to help budget and anticipate large infrequent expenses (property tax, etc).

I also recommend opening a no fee HELOC just for fun as an added layer of emergency preparedness.

I also recommend I bonds as an emergency layer.
51% US / 34% ex-US / 15% “bond”
Topic Author
bernie5151
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by bernie5151 »

H-Town wrote: Fri Aug 05, 2022 4:44 pm Generally we don't keep cash in checking account. We have cashflow surplus each month. We are dual high earners and we have low expenses. If we have a big ticket item purchase, our monthly cashflow can usually cover it. Then I look at the trend of average cashflow surplus in a year and decide how much the automatic investment to taxable accounts should be. If we have unexpected cash inflows (bonus or other income), I just manually put it in taxable accounts.
Your plan is exactly what I'm shooting for. Figure out my cashflow, then toggle the auto investment into the taxable account to take care of the surplus, and add anything extra to taxable manually. But here's my question. If you've set your auto investment amount to skim off any surplus above your monthly expenses, how do you also have extra cash each month to cover big ticket items (for example, a new heat pump). Thanks!
KlangFool
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by KlangFool »

OP,

1) I keep 2 years of expense as my emergency fund.

2) I do not have the concept of one off discretionary expense.

3) I spend everything within my annual expense of 60K per year.

4) I could pay for something ahead of time with my emergency fund.

5) Then, I cut my expense in subsequent months to refill my emergency fund.

"how do you also have extra cash each month to cover big ticket items (for example, a new heat pump). "

6) Why do you need to do this? If you keep your big item expense low (house, car, and college education), you should have enough discretionary expense space to handle this.

7) I save 1 year of expense every year and then I spend the rest. I save first and spend later.

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Last edited by KlangFool on Fri Aug 05, 2022 5:00 pm, edited 2 times in total.
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pasadena
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by pasadena »

Hmm. I keep half of my monthly budget from each paycheck, to be used the following month. Then I have whatever is in my sinking fund. Then the cash tier of my emergency fund.

So that's anywhere between $10k and $15k, depending on the time of the month. I could probably trim the sinking fund a little, but...

(The rest of my EF, so another $10k, is in I-Bonds. Half of those are now available to withdraw. I consider them cash-like.)
H-Town
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by H-Town »

bernie5151 wrote: Fri Aug 05, 2022 4:52 pm
H-Town wrote: Fri Aug 05, 2022 4:44 pm Generally we don't keep cash in checking account. We have cashflow surplus each month. We are dual high earners and we have low expenses. If we have a big ticket item purchase, our monthly cashflow can usually cover it. Then I look at the trend of average cashflow surplus in a year and decide how much the automatic investment to taxable accounts should be. If we have unexpected cash inflows (bonus or other income), I just manually put it in taxable accounts.
Your plan is exactly what I'm shooting for. Figure out my cashflow, then toggle the auto investment into the taxable account to take care of the surplus, and add anything extra to taxable manually. But here's my question. If you've set your auto investment amount to skim off any surplus above your monthly expenses, how do you also have extra cash each month to cover big ticket items (for example, a new heat pump). Thanks!
With big ticket items, we look for credit card offer (cash bonus or hotel/airline points). At the very least, credit card gives us 1 cycle (1 to 2 months) to pay it off with no interest. It's enough time for me to adjust the automatic investments if needed.

But let's say we need 50k to buy a new car. I would look for selling shares in taxable income. We have accumulated a large capital loss carryover over the years.
Time is the ultimate currency.
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willthrill81
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by willthrill81 »

We have a fund used for irregular and non-monthly expenses into which we make monthly contributions/withdrawals from, as discussed in this thread. We've been doing this for nearly a decade, and it's worked flawlessly for us.

We had accumulated enough in the fund last year that we moved two-thirds of it into I bonds, which worked out very well.
scrabbler1
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by scrabbler1 »

bernie5151 wrote: Fri Aug 05, 2022 4:34 pm Hi Folks,

Question: In addition to our emergency fund (7 months), my wife and I think we need some amount in cash in our checking account...so we have a buffer for monthly expenses. For example, if we want to buy a piece of furniture, we don't want to dip into our emergency fund for that. In my mind, a discretionary purchase like furniture is not a true emergency and thus not what the EF is for. Do folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF? We were thinking $10-20K. On the other hand...we don't want to keep TOO much in cash when it could otherwise be invested. Thoughts?

Context: We're trying to figure out how much to invest each month, but it's difficult to do so until we figure out how much non-EF cash to keep on hand.

Thanks!
You seem to be describing the two-tiered system of funds I have set up. The first tier, which is more liquid and more readily available, is about $700 in my local bank's checking account beyond its minimum balance requirements to avoid monthly fees. (That means I could access more than $700 if I were willing to pay the monthly fee, but that has never, ever happened.) This $700 I can access via cash from an ATM or from a quick, personal check. This money generates no interest. I hate having any significant amount of money earning zero interest.

The second tier is about $40k I have in a national muni bond fund. It generates about 2% interest, mostly tax-free, and it has checkwriting privileges. I use this only when I have a large expense that the first tier can't handle. I rarely have to access this money, on average less than once a year in the 30 years I have been in this fund. Sometimes, I have made a small profit when writing a check, sometimes, a small loss. This account is part of the bond portion of my overall portfolio.
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AnnetteLouisan
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by AnnetteLouisan »

I used to have a checking account for everyday expenses and keep $20-23k in there generally because I didn’t have time to micromanage the account and over $10k you got a better rate.
case_of_ennui
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by case_of_ennui »

bernie5151 wrote: Fri Aug 05, 2022 4:52 pm
H-Town wrote: Fri Aug 05, 2022 4:44 pm Generally we don't keep cash in checking account. We have cashflow surplus each month. We are dual high earners and we have low expenses. If we have a big ticket item purchase, our monthly cashflow can usually cover it. Then I look at the trend of average cashflow surplus in a year and decide how much the automatic investment to taxable accounts should be. If we have unexpected cash inflows (bonus or other income), I just manually put it in taxable accounts.
Your plan is exactly what I'm shooting for. Figure out my cashflow, then toggle the auto investment into the taxable account to take care of the surplus, and add anything extra to taxable manually. But here's my question. If you've set your auto investment amount to skim off any surplus above your monthly expenses, how do you also have extra cash each month to cover big ticket items (for example, a new heat pump). Thanks!


Not who you're responding to but I am doing the same. I set my auto investments into taxable to take care of most of my surplus cashflow. The rest of the surplus is then either used for unexpected non-emergency expenses (like buying a piece of furniture) or is manually invested into taxable after a few paychecks when I have what I believe is too much in checking. Personally "too much in checking" means more than maybe 2months expenses.

Also I'd almost certainly make a purchase like that via credit card. That normally allows 1-2 paychecks to hit my checking account between the time I make the purchase and when that statement is due.
RetiredAL
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by RetiredAL »

I personally disdain the term EF. I have no finance bucket that is labeled EF. What I have is "readily accessible" funds. By accessible, I mean I can withdraw money from it's source and have greenbacks in my hand within a few days.

When I was in accumulation mode, this "accessible" was our taxable investment accounts. The 401K/IRA was not "accessible". Although technically accessible, I considered our Roth $ as not accessible.

Now retired, and having rolled over the 401K into an IRA, I consider the IRA money along with our taxable investment account to be accessible. Our ROTHs are designated as being our "last to spend" money.

The year I turned 69, I drained the taxable investment account replacing our roof, plus dipped into the IRA. I expected this drained taxable account to just be a 1 year thing until my RMD started, but the RMD age got extended, so it ended up as 3.5 years before I re-funded the taxable. I was not concerned in the least, as I had ample IRA $ to draw on.

Now onto checking -- Our checking balance is typically 1.5 to 2x our monthly spend. Our checking inbound (SS and IRA withdrawals) comes in 3x during the month. Between our wallets and a stash in the drawer, we have another $200 to $300 of cash on hand. I have $20-$30 stashed in the car, which I guess that could be technically considered as Emergency Money, as that would buy me enough gas to get me the 90 miles to home if I was visiting my Dad and found I had forgotten my wallet or lost it somewhere.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by JIMX7 »

Our SS covers our bills at $36,000 a year. We have a 2 million 3 fund portfolio so we set there. We roll over $100,000 in short term Treasuries if needed and have big balances in hysa
$50,000 in saving
$75,000 in money market
$15,000 in checking.
I know that's a high amount of cash that could be in the market but it works well for us.
stoptothink
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by stoptothink »

We rarely have more than ~$3k (often, much less) in our checking account, which would be about a month's expenses for us. Anything that isn't an "emergency" can be planned for, which for us usually means put on a CC with 0% APR and paid for whenever the grace period comes up out of normal cash flow.
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anon_investor
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by anon_investor »

case_of_ennui wrote: Fri Aug 05, 2022 5:22 pm Also I'd almost certainly make a purchase like that via credit card. That normally allows 1-2 paychecks to hit my checking account between the time I make the purchase and when that statement is due.
^^^THIS!!! (for unanticipated expenses)

I do put away cash each pay check for large anticipated expenses, such as taxes.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by stoptothink »

anon_investor wrote: Fri Aug 05, 2022 6:24 pm
case_of_ennui wrote: Fri Aug 05, 2022 5:22 pm Also I'd almost certainly make a purchase like that via credit card. That normally allows 1-2 paychecks to hit my checking account between the time I make the purchase and when that statement is due.
^^^THIS!!! (for unanticipated expenses)

I do put away cash each pay check for large anticipated expenses, such as taxes.
IMO, this is a bigger benefit to CC churning than the direct rewards. We always have a CC with at least 8 more months of 0% APR sitting around.
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willthrill81
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by willthrill81 »

As long as we have it, we'd consider using our HELOC if we suddenly needed some cash.
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anon_investor
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by anon_investor »

willthrill81 wrote: Fri Aug 05, 2022 6:27 pm As long as we have it, we'd consider using our HELOC if we suddenly needed some cash.
Have you ever needed to use it?
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willthrill81
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by willthrill81 »

anon_investor wrote: Fri Aug 05, 2022 6:36 pm
willthrill81 wrote: Fri Aug 05, 2022 6:27 pm As long as we have it, we'd consider using our HELOC if we suddenly needed some cash.
Have you ever needed to use it?
Yes, we did when we came across a screaming good deal on just the right motorhome we had been looking for.
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JoeRetire
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by JoeRetire »

bernie5151 wrote: Fri Aug 05, 2022 4:34 pmDo folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF?
We keep a few months worth of expenses in our checking account and the rest in Ally.
Pretty simple to move funds between the accounts with a few days delay.
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anon_investor
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by anon_investor »

JoeRetire wrote: Fri Aug 05, 2022 6:41 pm
bernie5151 wrote: Fri Aug 05, 2022 4:34 pmDo folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF?
We keep a few months worth of expenses in our checking account and the rest in Ally.
Pretty simple to move funds between the accounts with a few days delay.
If you had an Ally checking account it would only take a few minutes to move your money from savings to checking and you could get a little interest on that $.
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JoeRetire
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by JoeRetire »

anon_investor wrote: Fri Aug 05, 2022 6:47 pm
JoeRetire wrote: Fri Aug 05, 2022 6:41 pm
bernie5151 wrote: Fri Aug 05, 2022 4:34 pmDo folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF?
We keep a few months worth of expenses in our checking account and the rest in Ally.
Pretty simple to move funds between the accounts with a few days delay.
If you had an Ally checking account it would only take a few minutes to move your money from savings to checking and you could get a little interest on that $.
Yup.
This is gonna be my time. Time to taste the fruits and let the juices drip down my chin. I proclaim this: The Summer of George!
SnowBog
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by SnowBog »

You'll get replies between $0 to years of expenses.

Find what works for you.

What works for us is to have at least 3 months of expenses in "cash", which we grow throughout the year. Specifically we save to front load 2x Backdoor Roths, HSA, 4x (including trusts) I Bonds, EE Bonds, and 529 contribution in January, as well as estimated taxes to end up with $5k tax refund (I Bonds) in April.

We also no longer have a separate EF anymore, as we have a large enough portfolio, including now a growing amount of I Bonds, that we could tap into in an "emergency".
Last edited by SnowBog on Fri Aug 05, 2022 7:11 pm, edited 1 time in total.
Scotttheking
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Scotttheking »

bernie5151 wrote: Fri Aug 05, 2022 4:34 pm Hi Folks,

Question: In addition to our emergency fund (7 months), my wife and I think we need some amount in cash in our checking account...so we have a buffer for monthly expenses. For example, if we want to buy a piece of furniture, we don't want to dip into our emergency fund for that. In my mind, a discretionary purchase like furniture is not a true emergency and thus not what the EF is for. Do folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF? We were thinking $10-20K. On the other hand...we don't want to keep TOO much in cash when it could otherwise be invested. Thoughts?

Context: We're trying to figure out how much to invest each month, but it's difficult to do so until we figure out how much non-EF cash to keep on hand.

Thanks!
I do $0-$200k, depending on the day.
Haysnooze
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Haysnooze »

I keep about 3 months worth of expenses in my checking account. I could probable go down to 1 and a half months, but anything less than that would make me nervous. I do have everything set on autopay. If I didn't, maybe I'd be more confident in having less.
WhatsIRR
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by WhatsIRR »

We shoot to keep $100k in cash between checking and savings; it’s our day to day funds, lumpy expense, EF, etc and as expenses come up we pay them. This year we are closing in on $10k in unplanned expenses. Once a quarter I roll the excess over 100k from the bank accounts to the taxable account, if the bank happened to be below 100k at the end of the quarter I’d just keep building it back up.

The majority of our savings come from 401k, bonus and RSUs. The roll over from our bank is gravy on top so I’m not stressing the spend to maximize it.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Stick5vw »

For the past few years we have tried to keep at least $70k readily available - $20k in checking and $50k in a HY savings account. Sometimes it was even more than that, enough at least for a year of expenses. This was due to some unexpected costs, a work sabbatical, and with the arrival of kid #2.

I think we now realize this is WAY too much cash. We're dropping this down to ~$5k in checking, and $25k into the HY account.

With a portfolio of $1.5mn (inc. almost $800k in a brokerage account that can be accessed anytime), ~$80k through two credit cards, and (touch wood) a decent income - we would prefer to put some of this cash to work.

We have therefore put $40k into iBonds, tried do some work around the house that (we think) will be reflected in the home value increase, and we're also slowly DCA-ing into the market these days to hopefully buy some equities on the cheap.

Bottom line with current inflation levels I was not happy for this cash to be doing nothing. Once you have the basics covered, think hard what you really need to keep on hand because otherwise it is most likely losing value.
Last edited by Stick5vw on Fri Aug 05, 2022 8:52 pm, edited 1 time in total.
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Leif
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Leif »

I'm retired, so no job loss issue for an EF. I keep about 2-3 months of cash in checking. Beyond that about 1 year of normal spending in short term (CDs, T-Bill) in investment accounts to replenish checking as required. If a more expensive emergency came up then some short term assets could be liquidated (at a slight loss to keeping them full term).
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by mortfree »

Actual numbers as I don’t think in terms of how many months of expenses.

$20.00 in checking (not a typo)

6k to 10k in money market linked to checking.

50k in HYSA

Any excess in linked money market goes to taxable investments.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by 123 »

We normally keep $10K - $20K in checking accounts for ready "working" cash. We've got other cash in HYSAs but that is only used a couple times a year, like property taxes, annual insurance, and tax payments.
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JakeyLee
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by JakeyLee »

bernie5151,
I keep approximately 2 years expenses in cash.. I retired in January 2021. This wasn’t part of my original plan, but I changed my mind on a big ticket item. It’s not optimal or efficient. I keep 95% of it it in a vanguard money market fund. I’ve resigned myself to counting it as part of my bond/fixed income part of my AA. It has surprisingly outperformed the rest of my bond allocation. Go figure. Going forward, I intend to continue drawing/spending down this cash position until it’s at 6-9 months. After that, the so/called fun begins 🤪
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by UpperNwGuy »

I run my checking accounts down to almost zero at the end of each month. Any cash at the end of the month goes to either a high yield savings account or to a money market fund.
hafjell
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by hafjell »

To those recommending the HELOC, how does that work? You have an emergency, you withdraw money from the home equity loan, the next month your mortgage payment goes up? That makes me nervous.
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StAug1967
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by StAug1967 »

I include cash in my overall asset allocation rather than as an emergency fund. There's enough cash in my HYSA for 9 months' expenses at this point but that will vary when I re-balance. I keep enough in checking to pay the bills each month with any excess getting transferred over to my taxable account to be invested in a total stock market ETF.
dvvader
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by dvvader »

Hi Bernie 5151,

My wife and I have a 6 month emergency fund that we keep in its own savings account at Ally. This account is something we've been fortunate enough to build and maintain for several years now and it brings us great peace of mind. Earlier this year, we started using YNAB to budget and better track spending and expenses. We are fully funded one month ahead and this money all resides in our checking account. We are also using the app to build/track various "sinking" funds for home and auto maintenance, insurance deductibles, planned lumpy expenses (kids stuff, insurance premiums, taxes, planned charitable gifts, etc.), and some unplanned expenses that aren't emergencies; this money resides in another separate savings account at Ally. All in all this money currently totals to be another ~6 months of expenses, but will likely continue to grow as we continue contributing to our various sinking funds.

I am 32 with a wife and 4 kids and am the sole income earner for my family, for reference.
Last edited by dvvader on Sun Aug 07, 2022 9:40 am, edited 1 time in total.
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ruralavalon
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by ruralavalon »

bernie5151 wrote: Fri Aug 05, 2022 4:34 pm Hi Folks,

Question: In addition to our emergency fund (7 months), my wife and I think we need some amount in cash in our checking account...so we have a buffer for monthly expenses. For example, if we want to buy a piece of furniture, we don't want to dip into our emergency fund for that. In my mind, a discretionary purchase like furniture is not a true emergency and thus not what the EF is for. Do folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF? We were thinking $10-20K. On the other hand...we don't want to keep TOO much in cash when it could otherwise be invested. Thoughts?

Context: We're trying to figure out how much to invest each month, but it's difficult to do so until we figure out how much non-EF cash to keep on hand.

Thanks!
I have no dedicated emergency fund, and my portfolio does not have a cash allocation or hold any money market fund. I have no CDs or savings account. I currently have about $14k in my checking account, which is a fairly typical amount for me.

When employed my income was always very erratic and I always invested whatever amount of my monthly paycheck was not needed to pay the next month's expenses
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
SnowBog
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by SnowBog »

hafjell wrote: Sat Aug 06, 2022 7:01 am To those recommending the HELOC, how does that work? You have an emergency, you withdraw money from the home equity loan, the next month your mortgage payment goes up? That makes me nervous.
I think the assumption is that you normally have excess income after paying your monthly bills that did service a HELOC payment. Additionally, you are capable of prioritizing spending - reducing "discretionary" expenses until the HELOC is paid off. And if needed, you have enough other assets that you could tap into to cover things.

Which is you think about it, these are the same things that you'd do if you had a dedicated emergency fund that you spent down and now need to rebuild.

Presumably, the other argument in favor of this approach is that cash is a horrible investment asset, in that it's nearly always losing purchasing power to inflation. So instead of seeing your cash eroded by inflation "waiting" for an emergency, get it invested and use something like credit cards and HELOC for short term cash needs (again with the clear expectation that you can pay them off ASAP).

Having said that, while I understand the argument, it's not the right approach for me. When we were starting out, we didn't have the financial intelligence to manage things that way.. Back then a cash account was just so much simpler. Now that we are nearing being financially independent, and have the financial intelligence to do this, we simply choose not to. The cash account is simpler, we are accustomed to managing things that way, and to be blunt we can "afford" a bit of cash drag and we think it's worth it for the SWAN (Sleep Well At Night) factor.

Ultimately, my view on how much cash to hold and/or whether you include or exclude your EF, remains unchanged. Find what works for you.. Provided you are adequately saving and properly investing (e.g. have enough equity exposure), this is one of those "small things" in your investing life. Your ability to live below your means and thus your savings rate are going to have far bigger impact.
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Clever_Username
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Clever_Username »

Let's start with that I don't have an emergency fund, but I do have an emergency plan. If I have an unexpected large expense, I have many years' expenses worth of bonds that aren't in tax-advantaged accounts. If I have the "typical" emergency these funds are for, job loss, I also have a governmental 457 that I max out annually, currently with a little over two years' expenses in it (which ignores that, if I lost my job, I'd likely move to a lower cost of living area). I don't need to leave cash around.

That having been said, I keep very little money in my checking account and even less in my bank's savings account. I keep a little over the minimum in savings. I keep minimum plus about a thousand dollars in checking. I get paid monthly and pay my bills shortly after the first of the month. If the paycheck doesn't put enough money into checking to cover my expenses for the month and refill the buffer, I sell some bonds from taxable (not the Series I bonds) to fill the difference so I can pay my expenses and keep the same general amount in my checking account.

During a typical month, even pre-pandemic, I used very little cash and rarely use a debit card. Almost every expense goes to my credit card (1-2-3 at BofA) and that gets paid off at the end of the month.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by KyleAAA »

We don't have a separate pot of money. If we need cash for something, that's what the EF is for. Doesn't matter whether it's an actual emergency or not. We don't let the checking account get below $1000 to avoid accidentally overdrawing our account, but our EF serves all our cash needs outside of expected monthly bills.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Garco »

I am retired. I do my banking at a federal credit union. I have several sub-accounts. In all about $60K is on deposit. In checking ("draft"), IMA, savings builder, escrow, shares. I also have my Visa account there, with a line of credit of $25,000.

What money goes in? (a) RMD's from my 403b (about $12K monthly), (b) Social Security (for me and my spouse), (c) income (a fraction of earnings) is transferred monthly from my brokerage account.

This is a very flexible arrangement, and I can keep track of my accounts and make transactions online and by voice (telephone).

How much "cash" do I have on hand? As of a week ago, I had ca. ~$60,000 positive balance in the subaccounts that I listed above. We want to be liquid in case of emergency or important payments due, in particular property taxes and monthly Visa balance payoff. The Visa $25K LOC is also available and is important. Also I use an AMEX card, as another LOC of >$30K. And the credit union provides a HELOC of ~$60k.
Last edited by Garco on Sat Aug 06, 2022 10:45 pm, edited 4 times in total.
Random Poster
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Random Poster »

Roughly $150k in an operating checking account and $350k in various money market/checking accounts.

Annual spending is in the $45k to $60k range, which is mostly covered by interest and dividends from the taxable portfolio, so maybe the cash holdings are extreme, but they help me feel somewhat comfortable.

Besides, of the cash amounts, $50k is mentally set aside for a new car if and when the need arises, as is another $50k for any house issues.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by GMCZ71 »

hafjell wrote: Sat Aug 06, 2022 7:01 am To those recommending the HELOC, how does that work? You have an emergency, you withdraw money from the home equity loan, the next month your mortgage payment goes up? That makes me nervous.
It gives you time to evaluate your options. We have no mortgage just the heloc w/$45k limit. In January moved $20k to checking in 2 minutes then ordered $20k in Ibonds 5 minutes later. Paid that off before Feb by moving money from taxable to checking after looking over tax implications.

Recently one vehicle totaled so moved $30k from heloc to checking bought new vehicle with check, now waiting for insurance to send us a check. Hopefully it will be close to that amount but if not will move $ from taxable again and get the heloc paid by Sept.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by RobLyons »

Do folks regularly keep a separate pot of non-EF cash on hand? Nothing beyond a small amount of cookie jar cash.
Or do people dip in to the EF for one-off discretionary purchases and then replenish it? Yes. Our EF is our checking account and if it sinks below what I'm comfortable with, I'll invest less, earn more, or spend less.
How many months of expenses do folks keep on hand in cash beyond the EF? Less than one month.

In a true emergency, our entire portfolio is the EF. My work provides a lot of paid time off, short term disability, long term disability, life insurance, and I carry my own life insurance. For me, on top of all that, 4 months EF is enough.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by InvestorHowie »

Approx. 8 months of expenses in HYSA - 1-2 months of this is earmarked for lumpy expenses like home/auto repairs, vacations, etc. and is replenished from earnings as needed. I always maintain a low water mark at 6 months expenses. Works for us.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by sailaway »

An emergency fund is a buffer so that you can handle emergencies without it feeling like financial ruin. As you save, you have more and more tools to deal with unexpected expenses and what was once your emergency fund becomes a cash management buffer, just there to simplify your life.

We don't move money in and out of checking very often and we are now transitioning to a new funding phase. DH has yet to get a proper paycheck from his new part time role, so we are keeping a larger buffer than usual in the checking account. We also have a smaller buffer than usual in each of our savings accounts because we jumped on the ibond bandwagon.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Houdini563 »

Going into retirement I want plenty of cash to cover major home repairs, covering economic downturns, taking extravagant vacations etc. So I had as much as $181,000 in bank savings cash. Then decided to pay off my mortgage so now have $132,000 and will have $140,000 by years end.

Still have not announced my retirement although thought I would have by now. Now looking to retire mid year 2023. Finding it very difficult to walk away and my employer has made it more difficult with a $20,000 raise and huge bonus potential.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Nyc1967 »

bernie5151 wrote: Fri Aug 05, 2022 4:34 pm Hi Folks,

Question: In addition to our emergency fund (7 months), my wife and I think we need some amount in cash in our checking account...so we have a buffer for monthly expenses. For example, if we want to buy a piece of furniture, we don't want to dip into our emergency fund for that. In my mind, a discretionary purchase like furniture is not a true emergency and thus not what the EF is for. Do folks regularly keep a separate pot of non-EF cash on hand? Or do people dip in to the EF for one-off discretionary purchases and then replenish it? How many months of expenses do folks keep on hand in cash beyond the EF? We were thinking $10-20K. On the other hand...we don't want to keep TOO much in cash when it could otherwise be invested. Thoughts?

Context: We're trying to figure out how much to invest each month, but it's difficult to do so until we figure out how much non-EF cash to keep on hand.

Thanks!
I am one who definitely has TOO much cash when I could otherwise be invested. But I have a clear head! I have many sinking funds in my online bank.

I have a "new car fund" that I contribute a few hundred dollars to each month - so in 10 years or so I will have the money to pay cash for a car. I have another sinking fund for "vacation" that I contribute a few hundred dollars or more to monthly so when I go away I take the money from that account. I have an "insurance" fund that I contribute to monthly so when that bill comes I have the money!

Now that I'm thinking about it....maybe I'm loosing out on not "investing" all this money. But I have done this all my life - save for the specific then spend it.
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Re: How much cash (beyond emergency fund) do you keep on hand?

Post by Jags4186 »

Here is how we do it:

Make a yearly budget that encompasses everything. Let’s say that yearly budget totals $90,000 or $7500/mo. Say you have $120,000 of net take home pay, or $10,000/mo. You autosweep $2500 into your taxable accoun every month.

In January you start with $7500 in your checking. Now depending on your actual expenses, since not every budgeted item is a monthly expense, your checking account will drift higher or lower than that $7500 total. If you’ve budgeted “discretionary shopping” as a category, the checking account will balloon by the shopping category amount every month you don’t buy stuff. Once you have the excess available you buy what you want.

If you want to buy an unbudgeted item, then you have to reassess how much you save into your taxable account in a certain month or year.
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