How Much Cash Experts Say Millennials Should Keep Right Now
Millennials have spent much of their adult lives navigating financial uncertainty, from the Great Recession to a pandemic and now persistent inflation. That has left many people wondering whether they're holding too little cash, too much cash or simply keeping it in the wrong place.
The answer isn't a one-size-fits-all dollar amount. Experts offered some rules of thumb instead.
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How Much Cash Millennials Should Have in an Emergency Fund
Most experts agree that the right amount of cash should start with an emergency fund, but the size should reflect each individual's personal circumstances rather than a generic rule of thumb.
James Hargrave, a certified financial planner (CFP) with Pillar Financial Planning, laid out the varying amounts millennials should have based on their circumstances:
Single individuals = Three months’ worth of expenses
Married individuals = Six months’ worth of expenses
Dual incomes, good salaries = Three months’ worth of expenses
Couples with kids and other financial priorities = Six months’ worth of expenses
Freelancers, gig workers, those with inconsistent income = Nine months’ worth of expenses
Hargrave suggested the amount largely depends upon job stability.
"Emergency funds are there to get you to the next job without going backwards in your finances [or] dipping into retirement funds," he said.
Cody Schuiteboer, president and CEO of Best Interest Financial, favors even larger cushions for some households. The three- to six-month salary savings standard is for “covering bare essentials,” he said, while adding in a mortgage, a child or being a single-income household should raise that from six to 12 months.
Where To Keep Cash So Inflation Doesn't Eat Away at It
The amount of cash matters, but where you keep it may be just as important.
Hargrave prefers high-yield savings accounts as the first option and a money market account as the second option.
"I would not suggest adding any volatility to the principal for an emergency fund."
Regular savings accounts are ultimately “the worst way to save money,” Schuiteboer added. The key is to find the right type of account that confers enough interest but keeps emergency funds liquid.
How To Balance Cash Savings, Debt Payoff and Investing
Many millennials are simultaneously paying down debt and trying to build wealth. The best way to try to do both, Hargrave said, is to build up to about one month of expenses saved, taking advantage of any employer match for retirement.
“Then anything above 6% interest rates needs to be prioritized," Hargrave added.
It’s important to pay down more than the minimum payment on debt, however, so you’re not just paying the bank interest, added Marcus Hale, a personal finance expert with MoneyCompass.
“Paying down debt becomes the priority until you hit a safe floor."
Savings, debt reduction and investing should work together.
Can Millennials Hold Too Much Cash?
While having an emergency fund is essential, experts said excessive cash can damage long-term wealth.
Hargrave feels that having between one and two years’ worth of expenses saved in your younger years “is often giving up too much opportunity."
"Finance is both offense and defense. You can win with an all-time great defense … and a bad offense. However, most people win by having a good offense and a good defense."
Schuiteboer concurred, saying, "You need to be safe and still earning opportunity."
Don’t Just Focus On Cash
If there's one takeaway, it's that millennials shouldn't focus solely on how much cash they have. For many households, a well-funded emergency reserve in a high-yield account may offer the right balance between security and long-term financial growth.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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