Author Topic: How much cash to keep?  (Read 3823 times)

stlbrah

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How much cash to keep?
« on: August 06, 2015, 10:16:40 AM »
All,

I am curious about how much cash I should keep in my high interest online savings.

Between my retirement and brokerage accounts, I have about 75k. I currently have 40k in a high interest savings account online, and usually about 2k in checking.

40k still seems excessive for savings. I am thinking of dropping it to 30k. I own/mortgage my home, and have expenses of about 22k per year (including accelerated mortgage payments).

Any recommendations appreciated.

mr1500

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Re: How much cash to keep?
« Reply #1 on: August 06, 2015, 10:27:21 AM »
There are other variables here at play such as age, risk tolerance and retirement goals. However, having almost 2 years in cash seems like a bit too much. The common rule is 6 months of expenses.

slugline

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Re: How much cash to keep?
« Reply #2 on: August 06, 2015, 11:00:19 AM »
Do you track your spending? If you've tracked your spending over the past two or three years, you'll get a feel of the frequency and amount of "lumpy" (non-month-to-month) spending you do. I think that's the number one reason to keep a savings account around. The number two reason is to keep the equivalent of six (more or less) months of expenses on hand to buffer the transition of an unexpected job loss or something similar.

But if you can't think of another good use of these dollars, put them in your preferred investments.

forummm

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Re: How much cash to keep?
« Reply #3 on: August 06, 2015, 11:10:35 AM »
Over 2 years of your minimum expenses is excessive. That cash is a drag on your portfolio. Cash doesn't even keep up with inflation right now.

Heckler

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Re: How much cash to keep?
« Reply #4 on: August 06, 2015, 11:23:20 AM »
I've got a 2.5% allocation to cash in HIS. I recently reduced my short term bond allocation from 10% to 7.5% to include my cash as part if my asset allocation plan.  This 2.5% cash could carry us 1.5 months if both of us lost jobs on the same date without severance (unlikely).

Mostly that 2.5% is used to pay off big expenses like unexpected vet bills, insurance or property taxes, then replenished.

stlbrah

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Re: How much cash to keep?
« Reply #5 on: August 06, 2015, 11:38:10 AM »
thanks guys.

Age is 27- nearly 28. Risk tolerance is getting much better recently. I keep telling myself I don't plan to use this money for 10-20 years or more.

Income is about 4500/month after tax. 100% of excess money goes to taxable account, but i still have that stash sitting there from before i started investing. It was actually at 62k until recently (facepunch) when I took 22k out of it and put it into taxable.

I don't plan to completely retire, earning money is fun to me. I do, however, plan to quit the corporate world when possible due to the lack of creativity/individuality that it entails. There is not much that I desire to buy. When I do need something or go on a trip, I generally just contribute less to my taxable account for a few paychecks to make up for it rather than pull from savings.

Financial.Velociraptor

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Re: How much cash to keep?
« Reply #6 on: August 06, 2015, 12:12:04 PM »
How much do you owe on mortgage and what is interest rate?

astvilla

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Re: How much cash to keep?
« Reply #7 on: August 06, 2015, 12:49:20 PM »
I think you should keep enough cash that you feel comfortable with and helps you stick to your investment plans without wavering. 

There's a prevailing belief that one needs not a lot of cash and should constantly buy buy and buy. 

Of course things creep up that can raise expenses or set one into panic mode.  Losing job in a recession like one we had recently is an example.  In some cases, people had to retrain themselves or learn new skill sets.  All those things take up more money than what we recommend as 6 months savings.  Some people also do dollar cost averaging or are timing the market.  Maybe they'll invest some of their money and the other half is for buying on small or big dips.  To me, cash is kinda like ammunition and if you want to win or get good bargains which is a moving target, you need a lot of ammo, the more the better.

40K does seem like a lot to me though, you can definitely trim that down to 30K and maybe more.  Whatever makes you comfortable I guess.

Over 2 years of your minimum expenses is excessive. That cash is a drag on your portfolio. Cash doesn't even keep up with inflation right now.

Is there inflation?  I think we're in deflation or disinflation no?  I know prices are going up like eggs but that's more a supply and demand issue.  The economy seems pretty flat to me.

dess1313

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Re: How much cash to keep?
« Reply #8 on: August 08, 2015, 01:34:05 AM »
I would take a look at your mortgage.  A lot consider it too low so its very low returns, but the feeling of having no mortgage payment is huge and frees up a big part of your monthly income.  What's your amounts and % interest on it?  You mentioned accelerated payments, which is great.  When i was calculating my prepayments i found that for every dollar i put on, i saved a dollar in interest.  Have you done any scenarios of really early prepayments?  I'm super cautious and this was something that fit my risk tolerances

It sounds like you have plenty of cash, keeping 6 months of expenses (unless you're in a very feast or famine job, or a very unstable one) is usually enough for most.  Even reducing your cash by $5k now, and $5k again in 6 months  you'll have a better feel of what you want/need or even new priorities by then.  It doesn't need to be done all at once.