What Percentage Of Your Net Worth Should Be Kept In Cash?

Cash can be king when it comes to having it on hand for basic needs and wants. While there are some purchases you should avoid paying for in cash, it is still a sound financial decision to keep some cash on hand. In fact, you might want to have some cash as part of your investments, depending on your finances, with the general range of cash and cash equivalents making up between 2% to 10% of your overall portfolio, according to U.S. Bank. However, when talking about your net worth, there's a different way to calculate how much should be in liquid cash.

For starters, you'll want to take your monthly living expenses and multiply that amount by the number of months you'd want to be able to cover with cash reserves — which will equal the percentage of your net worth you should have in cash. It should be noted that investors usually want to have expenses covered in the range of six months to two years, but your specific financial situation will ultimately determine how much of your net worth should be in cash, with no singular percentage applicable to everyone.

You never know what the future holds, so it's important to plan ahead for the worst and hope for the best. This can include planning for a scenario in which you might need to have liquid assets on hand to cover sudden expenses. A designated emergency fund can help to cover any sudden life event like the loss of a job, death of a spouse, or even a divorce. Forbes recommends that those worried about a recession, or financial crisis, in the near future should keep three to six months worth of expenses in cash. However, if you are approaching retirement it might be good to have one to three years worth of expenses saved up in cash.

When it comes to keeping cash on hand versus investing it, SmartAsset notes that age and financial focus can be huge determining factors, with those in their 20s and 30s keeping 5% to 10% of their asset allocation in cash, while those in their 40s and 50s should have about 10% – 15%. Meanwhile, anyone in their 60s and beyond should keep roughly 15% – 25% of their assets in cash.