How Much Cash Is Too Much Cash?

[CogentCap]

This has probably been discussed a million times before, but I wasn't here then.  :)

I'm wondering how much cash is advisable to keep on hand for expected but unpredictable (non)emergencies while I'm building up my stache. 

I'm sure the obvious answer is "it depends on your situation and comfort level," but I'm looking for more specific reasoning, if anyone has an opinion.

Our situation: we've got another 6-8 months until our debt is completely gone, and after that it is STACHE TIME.  I'm looking forward to it and making plans on how to arrange the money.

So I know that at some point there will be necessary car repairs, and eventually a car replacement (don't judge, all ye cyclists, we need cars for our freelance work situations).  There may or may not be other such anticipate-able situations (we rent, so no home maintenance, but health is always a possibility, or other family emergencies).

So...is it unreasonable to put $10-15 in cash in an account for Planned Unplanned Events? That amount should be enough to cover car and anything else that I can imagine might go wrong.

On the one hand, that amount is small (ultimate goal is to amass hundreds of thousands, after all) but on the other hand, keeping it invested could be a better idea, maybe?  Especially since we are just getting started.  Is it wise to keep $10-15k just sitting around for what will likely be years on end?  Maybe $5000 is plenty of cash to have on hand. 

If it matters, we live in a LCOL area and will hopefully not need a car replacement for at least another 5 years (hopefully longer), but I guess you never know...

I figure I'll start with $5k and add to it along with the stache as time goes on, but I'm wondering when is a good idea to stop.

Just interested in some opinions on the matter!

[CogentCap]

Now that we are FIREd and getting ready to sort out investments for longer term, I still plan to keep a large cash "bucket" on hand, so that we can ride out a 2-3 year economic downturn and not feel pressured to sell off investments at a loss.

Some would say I'm being foolish to keep so much in cash.   But I FIREd at 46 and should have plenty for the next 50+ years even with lower returns.

YMMV.

Interesting!  So, if I understand you correctly, now that you are FIRE'd you keep about 3 years of expenses in cash?  Seems like a great reason to me.

[Frankies Girl]

I'm FIREd and we keep around 1 year's worth of expenses as cash in a high interest savings account. That's what is comfortable for me. I used to think I needed more, but realized that even having to sell off during a low point wasn't that big of a deal since we'd likely cut expenses anyway during bad times and there's always working (I was a white collar creative job before quitting, but have no problems doing retail or service industry work - I'd take what was available if I had to).

[TempusFugit]

I know this isn't what you want to hear, but it really does depend on your situation. 

Is your income pretty stable?  Does your spouse work? Is their income stable?  Do you have children?  Do you have insurance? 

How much money will you be able to save on a monthly basis?  What would a bare bones budget be for a month?  Do you work in a field that is in good demand and live in an area where you could find work easily?  Would you be able to relocate if you needed to in order to find work?  Do you own a home or rent?

You want a generic answer to the questions  "How much should I have in an emergency fund, and what form should that emergency fund take?" 

Without knowing the above details, I would say you should have access to enough money to pay for reasonable unexpected expenses, such as a big car repair ($1,000) or a home repair (same).  If you have access to credit, that's good so long as you would be able to pay that debt off quickly (30 days) so as to avoid interest payments.

You should have access to enough money to support your family ( on a bare bones budget) should you lose your income for some reason for long enough to reasonably expect to find another job.   That doesn't have to be cash.  It could be a taxable brokerage account with investments in something relatively stable such as bonds.  In that case, you would want to have enough invested that you could reasonably expect to withstand a market downturn and still be able to access enough money for the above situations.  Of course that gets easier as your investments grow. 

Having access to credit is always a good thing.  You don't want to ever have to pay interest on borrowed money, of course, but you can use credit as an emergency fund so long as you have income or other assets that can be used to pay that debt before you start paying interest. 

If you have a high savings rate and you are faced with a big car repair, you could pay for the repair with a credit card and then pay off that debt with the money you would otherwise be saving from your next paycheck. 



 

[frugaliknowit]

A key question is:  If you or your live in (spouse, partner (you didn't mention the specifics)) became unable to work, could the other's income sustain the two of you?

What kind of disability insurance do you and your SO have?

If the answer to the first question is yes, and the second, a good percentage covered, then you can be pretty aggressive.  If the opposite, more conservative.

[CogentCap]

Thanks for all the replies!  To be a little more specific, it's not really an "emergency" fund I'm talking about (not worried about emergencies), but more like what to do with money I'll know I'll need eventually, but no idea how soon.

Our income is stable, in the sense that we are freelancers that receive lots of money in small amounts from lots of different sources.  It's highly unlikely that all those sources would dry up at the same time, but even if they did (or if there was injury preventing us form work), as long as we were still able-bodied and/or-minded we could almost certainly find work that would cover our needs, even if it was minimum wage McJob (yay for minimum expenses!)

As for disability insurance...LOL.  Yeah right!  Our benefits include a super high deductible ACA plan and the ability to fall on our own sword, lol. We also pay for barebones car insurance and instrument insurance (we're musicians).

We rent, no children (nor plans for any), in good health.

It sounds like the general consensus is that it's a fine idea to keep $10-15k in cash, even as we start building our stache.
(Correct me if I've misunderstood anyone)

So I'm thinking I'll stick with the plan to start with 5k in the cash stash, then start with the investments, and add to both until the cash stash reaches a car-like+extra amount.  :)