Working Wealthy – What’s Your Cash Cushion?

It’s a topic we take for granted, but it is rather important to the cash management of any household or family. How much cash do you keep on hand for emergencies?

No one plans to replace their furnace and get in a car accident in the same week. So be prepared, and don’t let a short-term crisis turn into financial turmoil.

Sometimes we’ll use the term “cash cushion” or “emergency fund”, but whatever you call it, the amount of cash you have at the ready can mean the difference between a stressful experience or a financial boondoggle.

How much should I have?

There is a certain amount of personal choice involved with how much cash to maintain. As a rule, we prefer our clients maintain at least 6 months of regular spending in cash as their cushion. Some people will opt for more or less, but we feel 6 months provides the proper liquidity for almost any short-term issue.

Like anything, your cash level is relative to your lifestyle—do you have a mortgage? Is your job secure or are you self-employed? Does anyone outside your immediate family depend upon you for support? All of these questions will help you tailor the best cash situation for your family.

Be mindful that maintaining too much cash can be a bad thing. If I keep two years’ worth of spending cash in my savings account, I run the risk of the lost opportunity cost of those funds growing more effectively in my portfolio. We strive to strike a balance of comfort on the cash side without losing out on growth in the portfolio.

Where should I keep it?

Let’s clarify what we mean by cash. Cash is either a savings or checking account that is FDIC-insured and readily available should you need to access the funds.

Cash is not an investment that would need to be liquidated ahead of time and be subject to market volatility. In other words, cash is cash. Traded money markets are an option here, but just be aware that they may need to be traded to liquidate to cash. This could create a day or two lag in accessing your funds, however these money funds may offer a better yield too.

When do I access it?

We talk to clients about using their emergency cash only then—in an emergency. Use the funds to pay for an unexpected cost like a failed furnace or an unanticipated medical bill/deductible.

Emergency funds should not be used for vacations that cost more than you had hoped or that couch you just had to buy because West Elm had a Fourth of July sale.

Maintaining discipline with your cash cushion should help you understand that it only gets utilized in the most severe situations.

Your cash health is important, and at BDF we help our clients think through this regularly. Don’t take your cash situation for granted. Monitor and maintain it in a way that’s best for your family.


Nick Cosky, CFP® is a Wealth Manager and Owner at BDF and is responsible for educating and introducing prospective clients that are considering hiring BDF for their wealth management needs. In previous roles, Nick has served as the head of BDF’s Financial Planning Committee and has participated on the Business Owner Team and Women’s Service Team. Nick is passionate about the planning that BDF does for its clients and enjoys every aspect of the client-advisor relationship. Nick graduated from Lawrence University in Appleton, Wisconsin, with a Bachelor of Arts degree in History and English. He is a CFP® professional and is a member of the Auxiliary Board at the Art Institute of Chicago.