How Much Cash Is Too Much Cash?

Written by Christian Ray. Christian is a Certified Financial Planner and QA’s Director of Client Engagement.

It is quite often that clients will ask: How much cash is too much cash?

For some it’s a simple question needing a simple answer related to an investment strategy or a debt payoff decision.  However, for others this question represents an emotional concern tied to the uncertainty of remaining in the “safety” of cash – maybe for too long.

While factors such as our personality and life experiences can certainly help to explain reasons why we hold as much cash as we do, there are not too many investors who can confidently and clearly conclude what the right amount of cash is appropriate for their situation.

To help answer this question an investor should begin with a baseline understanding of their financial goals, their personal preferences, and more importantly the basics of their own personal cash flow needs.

General finance rules of thumb tell us that investors should have 3-6 months of cash equivalent to our income or expenses. However, if we find ourselves with high and stable incomes, this rule of thumb applied will surely result in too much cash.

And what are the consequences of too much cash?

• Low to no return on those balances

• Carrying too much debt and regretting how we might have better used our cash

• Missing opportunities to invest the funds more effectively, as part of a broader plan


A few steps to help you solve…

1) Find your “sleep well at night” number.
Each of us has a certain amount of cash that we require to feel comfortable and confident in our financial situation should we experience one of life’s many financial curve balls.

2) Identify your exits.
Like flying on an airplane, understand where else you might go if the worst happens. Determine where you have access to liquidity should you need it. Consider the equity in your home (HELOC), your liquid investment assets, insurance cash values or alternative means for meeting expenses.

3) Take action to separate out “emergency funds” from your day-to-day spending.
Identify what is needed to support an emergency and recognize what cash is building as result of your cash flow (as you spend less than you earn). Consider these emergency funds as break the glass and pull the alarm money –a disruptive change in job, providing support for a family member or to cover a sudden unplanned expense.


If you have concluded that you are carrying “too much” cash, your next step should be an intentional one to find a home for the excess. This could mean an opportunity to reduce debt, make further investments, increase giving, or take permission to spend. Like with any significant financial decision, let well thought out goals and investment objectives through a financial plan determine the answer to “how much cash” and then, be intentional.

Let us know if we can help you take the steps to make an informed decision.