My Rich Nerd,
Quick thought experiment: I hand you a $100 bill and ask you to light it on fire. You’d never do it, obviously. But if you’ve got tens (or hundreds) of thousands of dollars parked in a bank account earning basically nothing, you may be doing a slower version of the same thing, just without the flame.
We see this constantly in our live financial audits. In one recent audit, an accountant (someone who works with numbers all day) was sitting on $90,000 in cash. When we asked why, she said it plainly: fear of losing money.
We understand that. But where’s the balance?
Because there’s a point where more cash in the bank stops protecting you and starts costing you.
📉 The Actual Cost
Leave $50,000 in an account earning next to nothing while inflation averages around 3%, and 20 years from now its buying power drops to roughly $28,000 in today’s dollars.
Invest that same $50K at a 7% annual return, and it grows to roughly $193,000 over the same period, about $107,000 in today’s purchasing power assuming that same inflation rate.
That’s the part people miss. Waiting until investing “feels safe” isn’t neutral. Doing nothing is still a financial decision, and over decades, it can cost you tens of thousands of dollars in purchasing power.
So how much cash should you actually keep?
🛡️ The Three Buckets
There’s no magic number. The goal is to give every dollar a job.
Start with checking. We generally don’t see a reason to keep much more than two months of expenses here. Your paycheck is cycling through this account every pay period anyway, so there’s usually no reason to let a huge pile of cash build up.
Then comes your emergency fund, which we like to build in stages. Level 1 is your “wooden shield” (shoutout to Kelechi for the naming): one month of expenses. Once that’s in place, grab your full employer match and clear any debt above 6% interest. Then come back and build Level 2: six months of expenses, for when stuff happens, like layoffs or a surprise $8,000 water heater (RIP, real event). Pro tip is to keep the second and third buckets in a hysa.
Finally, there’s money for near-term goals, anything you already know you’ll need within the next 5 years. Maybe that’s a home purchase, wedding, car, tuition, big trip, or something else already on the horizon. Money with a near-term job generally shouldn’t be exposed to the possibility of a major stock market drop right when you need it.
Add those three buckets together, and you have a reason for the cash you’re holding.
Anything beyond that deserves one simple question:
What is this money waiting for?
If there’s no good answer, it may be sitting there slowly losing purchasing power.
Once your buckets are full, put the rest of your money to work — invest it, spend it, or use it to build the life you actually want.
Thanks,
Imran
