When markets get turbulent or headlines turn grim, many people instinctively retreat to cash. It feels safe, predictable, tangible, and readily available. There’s no volatility, no chance of “losing” money overnight.

And for certain purposes, cash is exactly what you need. It’s essential for covering short‑term expenses, building an emergency fund, or giving yourself flexibility during life’s unexpected moments. In these situations, cash is not just safe; it’s smart.

But as comforting as cash feels, holding too much of it for too long can quietly put your financial health at risk.

The biggest reason? Inflation.

While the amount in your account stays the same, its value (ie. what it can buy) gradually erodes over time. Even moderate inflation can eat into your savings faster than you might expect. A basket of groceries, a tank of fuel, or a year of tuition costs more every year, yet cash sitting idle in a low‑interest account struggles to keep pace.

Another risk of holding too much cash is opportunity cost. Money that could have been working for you, growing through investments or earning higher returns elsewhere, sits on the sidelines, missing out on potential gains. Over years or decades, that missed growth can make a big difference to your long‑term goals.

So how much cash should you hold?

The right answer depends on your situation, but here are some principles to consider:

  – Keep an emergency fund. Typically 3 to 6 months of essential expenses — in cash or near‑cash investments. This helps you handle sudden job loss, medical bills, or unexpected repairs without having to sell investments at the wrong time.

  – Maintain enough cash for planned short‑term needs like a house deposit, a big holiday, or upcoming school fees.

  – Beyond that, think carefully about whether excess cash could be working harder for you elsewhere.

Cash isn’t “bad,” but it works best as part of a broader plan and not as the whole plan. It’s one of many tools, alongside investments, insurance, and other strategies, that help you balance safety and growth.

If you’re unsure whether you’re holding the right amount of cash, or if you’re worried about taking the next step into investments, then please book a catch up soon.

Together we can create a plan that gives you the peace of mind of having cash on hand when you need it, while also making sure the rest of your money is moving you closer to your goals.