Family of Four Taking Flight to Financial Independence

How Much Cash Is Under Your Mattress?

I read an article recently that stated, “69% of Americans have less than $1000 in their savings accounts.”  What a scary figure!  That basically means that roughly 70% of the people in this country are living pay check to pay check.  What’s even more frustrating is that (some of) the same people are probably driving around in new cars, wearing fancy shoes, and grabbing a cup of fancy coffee every day as well.  It’s enough to drive me crazy!

The article got me thinking though.  What is the “right” amount of money to keep laying around in savings accounts? 
One thing that I can’t stand is idle cash.  I like to have as much of our hard earned money as possible working in the stock market.  That said, bills still need to be paid and unexpected expenses tend to pop up so there is a need to have some cash in a regular bank account.  The question is... how much?
The answer to this question is going to be different for everyone.  What I’d really like to gauge from this post is the amount that you (the readers) need to have on hand to be comfortable. 
I also think that the amount should be different for working years versus retired years, so I will break that down as well. 
How much do we currently keep liquid?

We like to keep enough to cover our fixed monthly expenses which is about $3,200.  Then I like to have another $2,000 for vacations and unplanned expenses.  For our family I would say a good round number of $5,000 is what we keep liquid from month to month. 
What about emergencies?

In the case of an emergency, where we need a large amount of money, we would simply use our credit cards. This would buy us time between the time we charge the card and the time the bill is due, to pull the necessary funds from our taxable Vanguard account in order to pay off the credit card bill.  Note, we have been living by this philosophy for over 2 years now, and I have not had to implement this yet.
What about in retirement?

The above numbers show how we handle cash during our working years.  However, I anticipate this strategy to change once we reach financial independence. During our FIRE (financial independence retire early) years we will have a cash stash as part of our safety margins.  Being overly conservative when it comes to money, our plan is to have 3 - 4 years worth of living expenses in cash.  The reason being is that most recessions last between 2 - 4 years, so this money would be used if / when the next one comes along so we aren’t touching our investments in a down market.  We may also be working part-time so there may be no need to touch the cash stash, but it will still be nice to have.  Like we discussed in our Year 1 Withdrawal Strategywe will have around $100,000 in cash when we enter ER (early retirement).  $22,500 of which will be earmarked for emergencies

So that’s it!  We keep about $5,000 laying around during our working years and plan to keep about $100,000 during our retired years. 
How much is in your bank account?  Will that amount change when you retire?


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