How much cash should I have on hand now?

“How much cash should I have now?” It seems like a simple question, but the answer can be complicated — especially in times of market volatility. Apart from an emergency fund, the amount of cash or liquid assets you need depends on many factors, including the current state of the market and major life events.

“There isn’t really a general rule in terms of a number,” says Michael Taylor, CFA, vice president – senior wealth investment solutions analyst at Wells Fargo Investment Institute. “We do say it shouldn’t be more than maybe 10% of your overall portfolio or maybe three to six months’ worth of living expenses.”

Taylor notes that the number could change depending on what’s going on in the economy and markets. In recent years, experiencing situations such as the pandemic led some investors to keep up to 12 months of expenses in cash or cash equivalents. “You should make sure your emergency fund and cash reserves can meet your current needs,” he says.

You should make sure your emergency fund and cash reserves can meet your current needs.

- Mike Taylor, CFA, Senior Wealth Investment Solutions Analyst

Taylor and Marcel Hamburger, senior wealth client financial advisor for Wells Fargo Advisors, share five events that should prompt a conversation with your investment and wealth advisors about how much cash to have on hand.

1. When the market is in flux

The state of the market can have an impact on how much cash you should have on hand, how long you decide to hold an asset as cash, or when to convert assets to cash. This can be especially true when you can foresee a large discretionary purchase such as a vacation home or a luxury vehicle.

“Plan for those purchases, or defer them so you don’t have to liquidate assets at a loss during market uncertainty,” Taylor says. “In addition, you may also want to adjust your cash reserves to help protect you until the market recovers.”

Adds Hamburger, “The far-reaching impacts of global events can create some very sudden pronounced moves in the markets. In my view, it is imperative that investors stick with their cash reserve plan. You don’t want to come up short or have to take a hit by selling an asset when the market’s low.”

2. When your job status may change

If you’re contemplating a career move such as starting a business, retiring soon, or facing a possible layoff, consider meeting with your wealth advisor. “If you don’t have enough cash on hand during those transition periods, you might have to dip into an investment account or sell a stock at an inopportune time,” Taylor says. “That means you could end up losing money when you can least afford it.”

3. When your marital status is about to change

Getting married? While costs vary by location and number of guests, the average cost of tying the knot is close to $30,000,¹ and that doesn’t include a honeymoon or the expense of setting up a household. A divorce can set you back as well, thanks to legal fees, asset division, and other costs. That means you need enough cash on hand to weather the transition from being single to getting married or vice versa. “Talking to a financial pro ahead of time can help you identify how much on-hand cash you need,” Hamburger says.

4. When your child is ready for college

In 2023, the average cost of attending a private college for four years is more than $200,000,² and this price increases when you factor in living and other expenses. At very selective colleges, the cost can be a lot more.

“It’s important to plan so that you have enough liquidity to pay those tuition bills when they arrive,” Taylor says.

5. When you receive a windfall

If you receive an inheritance, a large bonus, or a generous financial gift, ask your advisor about investment options relative to the amount of cash you should have in your portfolio. “If that money stays in savings or short-term CDs, it won’t decrease in value, but it also may not be able to earn to its full potential,” Hamburger says. “Too much cash can really put you behind the eight ball.”

Your long-term goals, risk tolerance, and spending and saving habits also affect how much cash you should have on hand. A wealth planning and investment professional can help you strike the right balance.