Money is an essential aspect of daily life, it’s crucial to manage your finances well and understand the importance of keeping some money in cash. However, many people are still confused about how much money they should keep in cash.
In this blog post, we will go over some guidelines and tips on how much money young couples and investors should keep in cash. Let’s dive in!
1. Emergency Fund
The first thing to consider when deciding how much money you should keep in cash is an emergency fund. An emergency fund is a cash reserve set aside for unforeseen circumstances like medical emergencies, job loss, or sudden repairs. It is essential to have an emergency fund to avoid taking out loans or using credit cards during times of crisis.
As a rule of thumb, financial experts suggest keeping three to six months’ worth of expenses in cash.
2. Short-term goals
Keeping enough cash for short-term goals is another essential aspect to consider. Short-term goals can include purchases like a down payment on a home, a car, or an upcoming vacation. It is generally a good idea to keep money for short-term goals in cash because investments may not provide the necessary liquidity at the right time. It can be a good idea to estimate the amount you would like to spend on these goals and set aside cash for them accordingly.
3. Risk Appetite
Risk appetite plays a vital role in deciding how much cash you should keep on hand. Investors who have low risk tolerance may want to keep more cash than those with a higher risk appetite. If you are an investor with a high-risk appetite, you may choose to invest more and keep less cash. However, if you have a low-risk appetite, keeping more cash may provide you with a sense of security.
4. Market Conditions
Market conditions are another factor to consider when deciding how much to keep in cash. In today’s low-interest-rate environment, there’s little to no growth in savings and money market accounts. The inflation rate is currently higher than the interest rate, making cash an unattractive investment option. However, if there is a market correction, it may be prudent to keep cash on hand to buy bargain stocks.
5. Personal Preference
Lastly, personal preference plays a significant role in how much cash to keep on hand. Everyone has different financial goals and situations, and there is no one-size-fits-all solution. Some people feel more comfortable with larger cash reserves, while others are comfortable with smaller amounts.
In conclusion, there is no right or wrong answer when it comes to how much cash you should keep on hand. However, you should consider your emergency fund, short-term goals, risk appetite, market conditions, and personal preference when deciding how much cash to keep on hand. Keep in mind that having excess cash might cause you to miss out on potential growth opportunities, but having too little cash reserve puts you at risk of liquidating investments early.
Balance is the key when it comes to deciding how much cash to keep on hand. Happy investing!
If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.
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