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Guide to determine how much cash to keep on hand and in "liquid" form—and when you should consider putting it in the market
What do we mean by "cash"?
Having "cash on hand" can mean two things:
Cash in your wallet, IRL
Cash in "liquid" form in your bank account, not tied into stocks, retirement accounts with withdrawal penalties, savings accounts with hefty withdrawal fees, and the like. This is cash you can withdraw immediately.
Do I actually need cash?
Short answer: YES, you actually need cash.
Remember that emergency fund we keep telling you about? Well, that fund is heavily dependent on cash. It’s essentially a reserve of cash to cover you for a period of expenses in case of an emergency. (When we say "cash," again, we're referring to money you can quickly and painlessly withdraw, not necessarily crisp dollar bills.)
In simplest terms, if you have enough cash on hand, you won't have to worry about how you'll pay your immediate bills.
Bottom line: set up an emergency fund because it’s never too late to get one going and growing! We recommend having two to three months' worth of expenses saved up, in case sh!t hits the fan! And this emergency fund doesn't have to be in actual cash. Having those funds secure in a bank account is just fine, and liquid for emergencies.
Log onto Pocketnest to find out how much you need to set aside for your Emergency Cash Savings.
Why should you keep cash on hand?
Investment opportunities
Cash is liquid. Meaning, it’s money you have to put little effort into moving. You don’t have to sell stocks to access it or wait until retirement. With “liquid” cash, it’s easier to take advantage of random, immediate investment opportunities. You can quickly invest that cash in the stock market with, relatively, no hassle. This way, you can take advantage of market pullbacks.
No internet required
Ever wait in an incredible line in Starbucks just for your app to crash when you’re trying to pay? Yeah, “digital” cash is great and super convenient—until it’s not! You can easily access cash without fancy technology or passwords. This is great for when time is of the essence… or if you're anticipating an apocalypse or internet crash. Here, of course, we're referring to cold, hard cash in your wallet.
Ease of use
A large part of the appeal of cash is its ease. No internet, swiping, fees, transfers, or third-party oversight necessary. Just grab a wad of cash from your pocket, and you’re set!
Cash is king—but you still need to be careful and thoughtful
Crime
Cash can make you a target for robberies and pick-pocketing. While it’s never fun to have a wallet stolen, it’s easier to recover cards than to recover cash. Yeah, we know it’s a headache to contact the company, cancel a card, and register a new one. Moral of the story: don’t make yourself a target. Keeping cash in your wallet or in your house is certainly not a bad thing! But just do so appropriately (i.e., don’t leave a wad of cash out if you’re hosting a party!).
Disorganization
Admit it, you’ve stuffed a few bills into a bag or pocket and have come home only to discover you lost some (or all) of it. You brush it off as “misplaced,” thinking “it’ll turn up one day”. And it never does. It’s okay, you’re not alone! The good news? You can avoid this kind of disorganization with digital banking! (And, remember that Pocketnest helps you keep all of your accounts in one place, so you can always see a simple snapshot of all your money—cashola, investments, you name it!)
Psst, have you linked all your accounts yet? Log into Pocketnest to link your accounts and get everything all in one place.
Missed opportunities
If your money is in cash—whether that's under your bed or in your debit account—that means it’s not earning interest or producing gains. Remember: the worst place to invest your money is under your mattress! Snapping up this interest now can have profound effects on your future finances. #EarlyRetirement! Don’t know where to get started? We’ll help you dip your toe into the market with 10 Investment Tips for 20-Somethings.
Know how much you need to save for retirement? Take our Retirement Calculator for a spin to find out!
What should I do with my cash?
Ah, the age-old question. It's also kind of a loaded question. We recommend logging into Pocketnest and checking in on your financial plan. (Before you “X” out of this screen, remember: it only takes 3 minutes a week to stay on top of your plan in Pocketnest!)
To know what to do with your cash, you need to make a plan for where the next dollar goes. You’ll want to ensure you’re tackling that debt, of course, and have a retirement savings plan set up.
Got debt!? Pop in and get your custom Debt Elimination Plan in just 3 minutes!
Got those items set? Awesome! Now, you’ll want to be sure you’re taking advantage of any match your employer offers for contributing to a retirement account. This cash is money your employer has already set aside for your compensation package; it’s literally free money!
(Psst, savings accounts that yield interest are an important accounts to continuously max out on, early in your adult life and professional career. Learn about how to get started on your 401k if you're feeling a little lost.)
When you’re ready to roll your sleeves up, you can also dip into the market and learning how to invest some of that cash.
What NOT to do with your cash
Don’t skimp on savings because of inconveniences. The majority of the time, it will only take one interaction to put money into a savings account that you don't need to touch for a long, long time. This goes for stocks, too.
It's a myth that you must constantly move money in stocks and trade equities. In reality, while you should monitor your accounts and equities, it's usually best to just let the money sit there and grow. See!? It’s not that much effort, so don't keep cash out of laziness. A few minutes of money moving can lead to a long time of money growth.
Find the right balance
Just like each of us is unique, so is our personal financial plan. (Ahem, that’s why Pocketnest gets to know you and your financial sitch, so we can offer you super-timely advice that’s custom to you.)
As far as how much cash you should carry around? It’s all about finding the right balance for you. Remember, this also may change over time, so be sure to periodically update your financial plan.
Now, pop into Pocketnest and let’s get this party started!