How much cash should you keep on hand?

April 30, 2021
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By Rob Schulz

Mansfield Record

How much cash should you have on hand? It depends. I wish there was a general rule that applied to everybody, but there’s not. Everybody is different, with their own life experiences, risks and opportunities, and, therefore, their own unique cash needs. If you don’t know where to start, then try to save up three months of expenses, then up it to six months’ worth. If you’ve been at this for a while, you probably already know how much cash a comfortable amount is based upon your experiences. For Shelly and me, it was again during our time as young parents while I was in the Navy when we had our most memorable experience around cash needs.

My ship conducted a homeport change from Norfolk, Va. Along with all of the personal logistics associated with moving our families, priority was given to training and qualifying for our upcoming deployment. So, instead of weighing anchor and just moving the ship down the coastline, we stayed at sea for six weeks training while our families moved on their own.

The move was brutal for Shelly, who was alone with an infant, but to make matters worse, we did not get a single paycheck for those six weeks. There was a glitch in my payroll that only I could personally resolve, but I was at sea. (This was before email and cell phones, so I was not accessible in any way.) Shelly had just enough money to buy formula and peanut butter. Unbeknownst to me, my wife and new baby slept in a sleeping bag on the floor in our new place without any furniture or utilities for most of that six-week period.

Use your own experiences and instincts to come up with a cash goal that feels comfortable. For some, it’s $50,000 and for others, it may be $5,000. But I encourage you not to think of your cash goal as a single number but, rather, as a range. Starting off, you may want to think of that range in terms of monthly expenses. Maybe you think having three-to-six months of expenses socked away sounds right.

Now, visualize a bucket filled with water with two marks on the bucket. One mark is called the high-water mark, and the other is the low-water mark. Ask yourself, “How much cash is too much?” In other words, let’s say, for instance, you have come up with $40,000 as the high-water mark, but your savings exceed this amount. Some of the excess money could be deployed better toward important long-term goals, right? So, you siphon it off into another bucket, like your kids’ college fund or retirement. Now ask yourself, “How much cash is too little?” If $20,000 is your low-water mark, and your cash gets below $20,000, start finding ways to save money and fill your bucket back up.

Rob Schulz is a local Certified Financial Planner and author of “Thoughts on Things Financial: Your Guide to a Chaotic Money World.” He can be reached at Buy his book here:

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