Most people with money invested tend to focus on portfolio performance.
Most people with money invested tend to focus on portfolio performance. Returns, risk, and rebalancing feel like the things that matter. But there is a more fundamental question that often gets overlooked until it becomes urgent: how much cash should you keep separate from everything you have invested?
Why you need a cash buffer
Think of your cash reserve as the financial equivalent of a spare tyre. You hope you never need it, but it’s there when you do. Accessible cash is not there to grow; it is there to give you options when life doesn’t go to plan.
The general rule of thumb is to keep between three and six months of essential spending in easy-access savings. Not your full monthly outgoings, but the costs you cannot avoid: housing, bills, food. If you are self-employed, run a business, or have less predictable income, stretching that to nine or twelve months is sensible. The same applies if you are approaching retirement, where drawing from investments at short notice can mean selling at a disadvantageous time.
The hidden cost of holding too much
Here is where it gets interesting. Too little cash is clearly a problem, but too much is a problem too, just a quieter one.
The FCA's Financial Lives 2024 survey found that 61% of people with more than £10,000 in savings and investments were holding at least three-quarters of that money in cash. The FCA flagged this as a genuine concern for long-term financial health. Inflation chips away at cash constantly. Even in a decent savings account, your money may be growing more slowly than prices are rising, meaning the real value of what you hold is quietly falling.
That money could be working far harder through a pension, a stocks and shares ISA, or other vehicles covered on our savings and investments pages.
So what is the right amount?
It depends. Your ideal buffer is shaped by your income, outgoings, employment stability, whether you have dependants, and how accessible your investments are. A salaried employee with a defined benefit pension and no mortgage is in a very different position to a freelancer with a young family and variable monthly income.
Rather than chasing a magic number, think of your cash reserve as a personal threshold: enough to feel secure, without leaving long-term returns on the table.
Talk it through with LDB wealth
This kind of decision sits at the heart of good financial planning. At LDB Wealth, working with clients across Surrey, Kent, and the wider UK since 2014, we help people find the right balance between financial security today and long-term growth. Our Weybridge and Dartford teams are ready to look at the full picture with you. Get in touch today.
