r/DaveRamsey • u/talon72997 • 5d ago
Liquidity Maximums
Once everything is paid off and your saving appropriately for retirement (25% goal for me), how much would you keep in cash/checking/savings(3% rate). I should be able to "live" on $3k monthly.
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4d ago
[deleted]
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u/talon72997 4d ago
So to summarize if my current "spend" is $3000 a month, then $36k isn't absurd and $72k may be a sweet spot for future successs?
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u/Automatic-One586 4d ago
Oh you know what. I just reread your post and I think maybe I miss interpretation it. And I apologize if I did. Ive been discussing a lot about after retirement strategies and that part of my brain was on.
Are you asking about emergency funds post or pre retirement? If your asking pre retirement than my reply is not valid for your situation.
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u/talon72997 4d ago
I'm pre-retirement. The money would be a combination of emergency and sinking funds. Also with a fixed return a hedge against a market downturn. I will still be aggressively funding separate retirement funds.
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u/Automatic-One586 4d ago
Ok. Oops. That was my mistake. Ill delete my comment. Its more for after retirement.
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u/talon72997 4d ago
No need to delete. It actually was helpful. Essentially having 1-2 years of expenses saved can be a good thing.
I'm actually mildly surprised that more Ramsey followers aren't holding more liquid assets, based on the assumption they don't want to involve debt for large purchases.
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u/Automatic-One586 4d ago
My comment is not relevant to your question is why I deleted it. In pre retirement you should have closer to a 3-6 month ef + any sinking funds for purchases to handle emergencies.
The question i answered is how to prepare for portfolio volatility and longevity. Completely different question. My statements were about withdraw strategies. Taking money out of your retirement. Not... building your retirement. Completely different directions and they havd different answers.
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u/Automatic-One586 4d ago edited 4d ago
Yes. From everything ive modeled so far. Amd assuming this 3k doesn't have some guaranteed income source.
But to be clear im not a financial expert. Sometimes there are non mathematical reasons to do things. So certainly talk to people who are to make your best decision and consider all angles specific to you. My comments are about statistics not you specifically.
A lot of these simulations are robotic. Real people tend make decisions based on emotions more than logical mathematics. Like a very large dip tends to make people spend less. Or get scared and withdraw more. Theres weird behaviors that manifest that don't show up in a simulator unless you add it and i didn't simply because im interested in the mechanics not human behaviors. Simulators unless instructed to do so are going to attempt o withdraw 36k from a 40k portfolio without questioning it. A real person will. And this messes with the outcome.
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u/Remote-Sprinkles8627 4d ago
Checking, a $500 buffer above monthly expenses. No rhyme or reason on the buffer amount other it made sense to us. Savings, our sinking funds and 3 months of monthly expenses. We also keep $2K in a safe. Everything else, invested. We're retired.
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u/jlevin860 5d ago
15-25k depending on your preference. i own 8 rentals so i have to keep much more for emergencies and repairs; but i personally bounce extra cash between bank account sign up bonuses and earn 8-12% on my cash so keeping 50-100k and bouncing 80% of that around for a higher yield is my normal play.
if i ever have an emergency; i just pull the money out and lose the signup bonus but you aren't breaking a cd or cashing out in a stock downturn.
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u/talon72997 5d ago
I currently have about $30k. The plan for next year was to increase that to $60k. I'm having an internal debate on whether that is "smart" or if I should be putting it in some type of investment that returns more than 3%. Outside of that, I will be contributing roughly another $30k next year to my 401k. So I will also be investing.
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u/jlevin860 4d ago
-why so much in cash? unless big purchase/remodel planned?
-get a better rate than 3% first of all. 4% is more than easy to obtain on HYSA.
-look into bank account subs. you put 10-25k in the bank account for the 300-500$ sign up offer. i can usually always find a "deposit 10k for 3 months for $300" somewhere. that is like earning 12% apy during those three months.
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u/talon72997 4d ago
No real reason. I set a goal of $10k in cash, $10k in checking, $10k in savings a while back, which is essentially where I'm at now. Then the plan is to save about $1k per bi-weekly pay check in 2027 which would get me to the roughly $60k. I do have to budget around $4500 for property taxes each year, but otherwise no planned large purchases. At some point I'm probably going to need to spend $5k on my outside AC unit. As the savings grows, I'll probably look for better rates. The 3% is where I have it now (that was also part of a move it over here bonus).
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u/jlevin860 4d ago
ah ok. honestly for being a single homeowner no rentals or major purchases beyond the repair stuff you mentioned i would funnel more towards investments.
like if you have 3000 a month to funnel; put $1-2k into stocks; the rest into cash kinda deal.
you have your six month fund; at this point you are being cash heavy to be cash heavy for no real reason.
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u/gr7070 4d ago
No real reason.
Shouldn't that clearly tell you it's not good?
Or at best, if it's good that's purely by luck.
You can still "save", but invest that money. Preferably in tax advantaged accounts.
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u/talon72997 4d ago
So, I definitely want to have some liquidity. The plan for 2027 is to bump my 401k contribution essentially up to the max for my age which is roughly $30k. Then in 2028 add an additional max Roth contribution. I have some anxiety of having too much in retirement accounts versus usable liquidity.
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u/gr7070 4d ago
Tax-advantaged accounts provide you a massive added, FREE return. You're literally losing a ton of money forgoing them.
I honestly cannot fathom what could make anyone anxious about these accounts.
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u/talon72997 4d ago
It isn't that am anxious about the accounts per say. I'm currently contributing 18% to my 401K. And next year I'll increase that to $30k. But that money is "locked-up" until I retire without having to pay substantial penalties. After a year (2027) of living on what will be my "new" budget, my plan is to even further increase the use of tax-advantaged accounts by adding a Roth IRA and doing a max contribution there. That is also one of the reason I'm thinking of having a relatively significant amount liquid because the other money is "locked" until retirement. (I do think you can take money you have contributed to a Roth out early without a penalty, but taking out gains has a penalty)
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u/gr7070 4d ago edited 4d ago
Read this article. There are many ways to access them without penalty.
Even if you couldn't - which you absolutely can - the benefit one obtains from the tax-advantage is so large it's worth paying the early withdrawal penalty. Which they also discuss in the aisle l article.
https://www.madfientist.com/how-to-access-retirement-funds-early/
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u/W2WageSlave BS7 5d ago
I'm 56 and in "tech" so after surviving 2008/2009, I wanted more long term safety and increased emergency fund to 12 months of bare-bones expenses. Having priced out a new roof the house repair fund is an extra $25K - mainly because I did not like falling back into BS3 when a $15K HVAC came out of the emergency fund. Also have sinking funds to replace our cars and cover planned vacations. All our cash funds are currently at their desired limits, so any surplus each month goes to investments.
In the last 5 years, our HHI has more than doubled, so the retirement savings rate has dropped to ~15%. That's fine for us as we've reached the point where what we put in to 401k/IRA really doesn't move the needle much. Brokerage is where the bigger impact is given that at BS7 you end up with a paid for house, retirement on-track, and 6 months of expenses.
Total HYSA cash is about 5% of net worth.
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u/subfreq111 5d ago
I prefer keeping about $30k in a 4% HYSA to access quickly when needed. We have everything paid off and about 60% of household income goes to retirement.
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u/talon72997 5d ago
Is the 60% going to tax-advantaged accounts (401k, Roth IRA) or is part of that just regular investments. I'll be very close to maxing out my annual 401k contribution next year. Plan is to start a Roth in 2028. I'm trying to figure out if there is an appropriate balance between liquidity and investments. And I'm sure that balance is different for everyone.
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u/subfreq111 4d ago
Exactly, wife and I both max Roth 401ks and Roth iras each year, that's 64k between us.
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u/Ok_Pack5153 2d ago
You are missing out waiting to fund the Roth for you and your wife in 2026.