How much cash to hold on to?

[m8547]

I'm looking for some advice about how to put my dollars to work. I'm coming up to a big transition in my life, and I'm not sure what to expect.

I'm 23, single, and currently getting my Master's degree. I'll graduate in December. I have no debt (aside from my credit cards which I pay off each month) because I had a scholarship and support from my parents for my bachelor's degree, and now I'm working part time as a research assistant, so my tuition is waived and I get paid a good hourly rate on top of that.

Here's what I currently have:
Taxable investment account: $20k
Roth IRA: $8k, maxing out contributions each year
(allocation for both accounts is 90% stocks, 10% bonds)
Savings: $7k at 0.75%
Checking: ~$2k
Available credit: $4k

This summer I'll be working full time at an internship making far more than I need. In the fall semester I should make just enough to cover all my expenses. I have a good idea of everything that will happen now through December, and I don't anticipate needing any of the money I currently have in savings. But I have no idea what will happen after that since there are so many possible paths I could take once I graduate.

There's a fairly good chance I will have a full time job as soon as I graduate. The research group I work for wants to hire me full time, and the only reason they wouldn't be able to is if they are hit by the sequester. They do mostly government contract work, so funding is never certain. I'm also hoping I will get an offer for a full time position from my summer employer.

So far I've been keeping a lot of cash around because I have no idea what to expect once I'm in the "real world". I really don't know how big my emergency find should be, or what kinds of things it might need to fund. And besides unexpected expenses, are there any expected expenses after I graduate that I should keep money around for, like buying furniture?

Is there any reason not to use my credit cards as my emergency fund? Carrying a balance is not an option, especially since my highest limit card has a low, low APR of 19%. Could I just charge unexpected expenses, if they should arise, then sell some investments to pay it off the same month? I guess the risk is that I might have to sell during a market low, but how bad would that be?

Finally, I'm open to suggestions as to where to put the money if I'm investing more. Are there any other kinds of tax advantaged accounts available besides IRAs? As far as I know, I can't get a 401k yet because I'm always part time or a temporary worker. In terms of asset allocation, I'll probably just add international stocks or REIT and keep bonds low.

[Jamesqf]

Why not put the cash in a investment fund, and let it work for you?  You might want a mixed "growth & income" fund rather than pure stock, as they tend to fluctuate a bit less.  Then if you do need cash, you can always take it out again.

I would think you should be able to open an IRA account, rather than the 401k.  You can have both, and (I'm pretty sure) can roll 401k money into your IRA if you leave an employer.

[FlorenceMcGillicutty]

IMHO, you should hang onto the cash until you land a job. Even though you have some good prospects, you don't have anything nailed down. You don't want to be in a place where you're putting living expenses on a credit card and you don't have a house to tap into for an emergency. If I were you I'd hoard the cash for the next few months.

[KingMe]

You didn't say what your monthly expenses are. I would want 6 months in your situation before making long term investments. If you have 6 months living expenses, then start thinking about adding to your investment portfolio.

I wouldn't consider a CC to be an emergency fund. That's what people without money have to do, so why choose to do it? You have cash, so use it if you have to.

Since you're maxing out your IRA and noting that you don't qualify for a 401(k) as a temporary employee, it sounds like you have significant positive cash flow that you could invest. If your emergency fund is sufficient, then continue investing for the long haul.

I'm not qualified to comment on your asset allocation. As for tax advantaged accounts, some people like to use health savings accounts as a backdoor IRA. This runs the risk that laws will change to close this loophole. So I personally don't recommend this.

Another possibility is opening a 529 account for yourself. If you think you'll want to pursue a Ph.D some day, this may be a good way to shelter investment income from taxation. You could also use the money on a relative, like a future child.

Unless you plan on using a tax-preferred account for its intended purpose (like health care or higher education), I wouldn't invest in such an account. Laws can change, and if you need the money for different purpose, there are penalties. It's also a pain when you file your tax return. If you invest in funds that seek growth, not current income, from your investments, you're not going to pay much in taxes on your taxable investments until your stash is much larger.