Wise "USES" for Your Cash

The amount of money you should  keep in available cash versus investments depends on your goals and stage of life.

We know it’s important to have cash available for our everyday spending needs as well as the inevitable “rainy day.” While it may seem like a good problem to have, having too much of your savings sitting in cash can be an issue, especially when you are investing for long-term goals such as retirement.

To help you determine how much cash makes sense for your situation, try using the acronym “USES”:

• Unexpected expenses and emergencies: Cash used for situations such as a job loss, a home repair or an unplanned medical expense.

How much? In general, about three to six months’ worth of living expenses

• Specific short-term savings goal: Cash dedicated for a goal that will occur within the next year or so, such as a wedding or vacation.

How much? The amount would be based on the goal.

• Everyday spending: Cash used to provide for your lifestyle, including day-to-day spending needs such as groceries, utilities, entertainment and your mortgage/debt payments.

How much? If you’re retired, about a year’s worth of income needs. If you’re still working, about one to two months’ worth of living expenses in cash, refreshed by your paycheck.

• Source of investment: Cash used as an asset class and as a source for investment opportunities.

How much? In general, up to 10 percent of your fixed income in cash, which would be approximately 5 percent of your overall portfolio.

The risk of not investing

Some people hold too much in cash, viewing it as a safe haven against the risk of a market decline. But cash is not risk-free: If it’s designated for a long-term goal such as retirement or education, the biggest risk you face isn’t a temporary pullback in the market; rather, it’s the possibility of not reaching your goal.

By ensuring you have each of the “USES” areas covered, you can better focus on your longer-term goals, including preparing for retirement and paying for education. Schedule some time now with your financial advisor to review your “USES” of cash.

Scott Thoma is a researcher at Edward Jones.

(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.