A gai shan life recently was talking about how as her net worth has been growing, she’s realized she doesn’t need to have as much money in cash and CDs.
We’ve gone exactly the other direction — we now have well over a year of savings in savings accounts. It used to be that I only kept enough to get us through the unpaid summer plus a little cushion, so 1-4 months of expenses at any point in time, and I always thought having 6 months of expenses in savings was insane. Who could afford to do that? Back when we were in graduate school and I was getting paid 3x/year I would lock up money in CDs partly in order to lock in higher interest rates (we had 4.75% at one point! Those were different days!), and partly so the money would be there when we actually needed it. I am less likely to spend if I can’t see the money in checking. I would not have done that if I’d been being paid monthly or biweekly. We would put in money for retirement and then there just wouldn’t be that much left, so it seemed like the obvious next place for cash would be more retirement or the mortgage. Not cash savings or taxable stocks.
Now, for no real logical reason (maybe I just like round numbers), my target for savings is much higher. There was sort of a loose logic– enough to replace a car + summer savings in case DH loses his job again + random money for other emergencies and slow reimbursements. We probably wouldn’t keep it quite as high as it is if I hadn’t opened up a higher interest savings account online. And it definitely wouldn’t be as high if Trump weren’t president, what with fascism and all. But we’re maxing out our retirement, the mortgage is gone, and we’re saving in 529s at a reasonable clip, so why not pay the opportunity costs to get a bit more peace of mind?
Which is more logical for what to do with your cash as your net worth grows? You could go either way– you could be like Revanche and realize you’ll be ok even if there’s a crash, or you could go like me and realize that you can afford to lose the gains you’re losing by not picking riskier investments.
What has happened to the amount you keep in cash vs. stocks as your income grows?