Personal Finance

I'm 47 with $4.6 million in the bank and I still tend bar once a week - how much cash should I keep on-hand?

Kristin Hitchcock

Published: November 22, 2024 12:20 pm

24/7 Wall St. Key Takeaways:

• Properly organizing your emergency cash is important to ensure it’s readily available and that you have just the right amount. 
• We recommend a layered approach, combining cash, checking buffers, and accessible credit. You don’t need to (and shouldn’t) keep all your emergency cash in one place.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Once you’re financially independent, the question of how to manage your cash becomes the name of the game. One Redditor was wondering how much emergency cash she should have on hand in the case of an emergency.  

With $4.6 million in investable assets, no mortgage, and annual expenses of $100,000, this 47-year-old FIRE retiree keeps a mix of cold hard cash, checking account reserves, and available credit to ensure financial flexibility. However, she was wondering if anyone has a specific strategy, as her plan is a bit haphazard. 

Let’s take a look at how much cash someone should have on hand. Of course, this will vary from person to person, depending on your expenses. 

How Much Cash Should You Have on Hand?

Here are some key considerations you need to keep in mind when building your own short-notice cash reserves:

• Cash on hand: You should have some physical cash on hand. There are many situations where digital payments just aren’t going to work, like in a natural disaster or power outage. How much? $1,000 to $5,000 works for most people. Store it securely at home. 
• Checking account cushion: You should also have some cash in a checking account that’s easy to move around. This money should work as a buffer to cover any unexpected expenses without worrying about overdraft fees. Preferably, keep 1-2 months of expenses in this account. 
• Available credit: Credit cards do offer some flexibility in an emergency, especially for very large expenses. However, you should use credit wisely and pay balances in full as soon as possible. 

Other Potential Account Types

All of that said, there are other accounts that can be successfully utilized for emergency cash. These may work alongside the options above, though we don’t recommend using them in place of physical cash and a checking account. 

• High-Yield Savings Account: HYSAs offer quick access to cash while earning interest. A balance equivalent to 3–6 months of expenses can bridge the gap between short-term and long-term funds. Typically, transferring funds takes a couple of business days, but it’s much faster than selling assets. 
• Money Market Accounts: These provide slightly higher returns than HYSAs and easy access to cash, typically via check-writing or debit card features.
• Treasury Bills or CDs with Short Maturities: For those with significant assets, laddered Treasury bills or Certificates of Deposit can earn interest while keeping funds accessible within a few months.

Organizing Your Emergency Cash

Organizing your emergency cash is a balancing act between accessibility and opportunity costs. Keeping a large amount of cash uninvested creates an opportunity cost. It could be earning money as an investment. However, you don’t want to have zero cash on hand, either. Here’s our suggestion:

• Immediate Needs: Cover 1 to 2 months of expenses with physical cash or equivalents. 
• Near-Term Needs: Use HYSAs, money market funds, or short-term Treasuries for 3–6 months of expenses.
• Long-Term Flexibility: Maintain credit card limits and plan to liquidate taxable investments in a pinch.