How much cash do you really need?

Answering these 8 questions can help you right-size your allocation to liquid assets.

Christine Benz 6 July, 2018 | 5:00PM

Unexpected expenses can crop up no matter your life stage, making it essential to hold liquid reserves -- apart from your long-term retirement assets -- to defray them. But how much cash is enough? That's more complicated than it sounds.

While the financial-planning textbooks suggest that people stash three to six months worth of living expenses in true cash instruments, the right amount of cash varies by individual. Life stage, career type and access to other sources of liquidity, among other factors, all play roles. A 55-year-old independent contractor with two kids in university obviously needs more cash on hand than a new grad who's renting an apartment with three friends. On the other hand, the 55-year-old may have more ready access to cash than the new grad -- via a home equity line of credit, for example; that means he may not need to stash quite as much in true cash instruments in the bank.

As you assess your cash holdings and determine the appropriate allocation, here are eight questions to ask. For another read on right-sizing your emergency fund, check out HelloWallet's handy Emergency Savings Calculator.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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