Are You Using Your Cash Wisely?
I recommend considering the acronym USES, to make sure you have cash on hand for unexpected emergencies, specific short-term savings goals, everyday spending and as a source of investment.
By: Edward Jones
4 uses of cash
To help you determine how much cash makes sense for your situation, we use the acronym "USES":
1. Unexpected expenses and emergencies – cash used for situations such as a job loss, a home repair or an unplanned medical expense
How much? In general, we recommend about three to six months' worth of living expenses
2. Specific short-term savings goal – cash dedicated for a goal that will occur within the next year or so, such as a wedding or vacation
How much? The amount would be based on the goal.
3. Everyday spending – cash used to provide for your lifestyle, including day-to-day spending needs such as groceries, utilities, entertainment and your mortgage/debt payments
How much? If you're retired, we recommend about a year's worth of income needs from your portfolio in cash. If you're still working, we recommend about one to two months' worth of living expenses in cash, refreshed by your paycheck.
4. Source of investment – cash used as an asset class and as a source for investment opportunities
How much? In general, we recommend up to 10% of your fixed income in cash, which would be approximately 5% of your overall portfolio.
The risk of not investing
Some people hold too much in cash, viewing it as a safe haven against the risk of a market decline. But cash is not risk-free: If it's designated for a long-term goal such as retirement or education, the biggest risk you face isn't a temporary pullback in the market – it's the possibility of not reaching your goal.
By ensuring you have each of the USES areas covered, you can better focus on your longer-term goals, including preparing for retirement and paying for education. Schedule some time now with your financial advisor to review your USES of cash.
Edward Jones - Mae Luchetti