Thanks, I see that now, 6x monthly income in retirement accounts vs.
Sarah Brodsky
21

I kind of question that strategy in general, but maybe I just don’t understand the purpose of having that much stashed away.

15x monthly income is a year and a quarter in cash, sitting in the bank. While this isn’t necessarily “a lot” if you’re a single person making $30k, the wisdom of hoarding that much cash goes down almost exponentially as income increases, especially if your expenses aren’t increasing with your income.

For example, my annual household income is north of $100k. Let’s say it’s exactly $100k for the sake of the conversation and math. That means, according to this logic, that I should have $125k stashed away in my savings account, earning a whopping 1% APY (which admittedly is really good as far as savings accounts go). Enough cash to buy a decent (though not luxury) house around here, essentially stuffed under a glorified mattress. As my household income continues to rise (as it will, given my husband and I are only 30 and in tech), I also run into the problem that 15+ months’ income worth of savings will soon exceed the FDIC insurance amounts of $250k per account, leaving the excess at risk without doing something different (with the cash thing, that would mean having multiple savings accounts and keeping the balance of each low enough to avoid that cap when interest is added, or regularly withdrawing the excess), especially if I continue to save at the rate I had been before reaching that “15 months saved” point.

It seems to me that it would make more sense to keep enough cash to cover around 3 (maybe 6) months of expenses (ideally plus a slight buffer to account for underestimates or unforeseen increases), and invest the rest in something that provides a passive income, or is otherwise quasi-liquid. The cash amount allows you to weather short term setbacks, and provides enough time to liquidate the semi-liquid assets if it turns out you have to. Outside of those setbacks, your invested money can rebuild your cash savings that much faster, and when that’s done, can grow themselves a fair bit faster than savings accounts.

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