Excerpted from 55 and Out, Personal Finance
The Three-Bucket Cash Plan, With Real Numbers
· 3 min read
Most cash management advice is too vague to act on. Here are the actual numbers and accounts.
Bucket one: operating. Two months of expenses in checking. For us, that's about $18,000. It pays the mortgage, the utilities, the credit cards, the car payment, the groceries. It doesn't try to earn anything. Its job is to never overdraft, never create a missed-payment fee, never make me think.
Bucket two: opportunity. Six months of expenses in a high-yield savings account. About $54,000 at 4.3%. Earns roughly $2,300/yr. This is the "something happened" fund — job loss, medical, a sudden home repair, an investment opportunity that won't wait. Liquid enough to move in 24 hours, separated enough that I never accidentally spend it.
Bucket three: runway. Twelve to eighteen months of expenses in a 4-week T-bill ladder via TreasuryDirect. About $130,000. Yields slightly more than HYSA, state tax exempt, and the ladder rolls automatically. This is the "I never have to sell stock in a bad market" fund. If the market drops 30% the day after I retire, the runway means I don't care for a year and a half.
Total cash: ~$200,000. That's higher than most advisors recommend. I sleep better with it. Your number will be different.
What I don't keep in cash: anything beyond the runway. The next dollar goes into the index funds. I rebalance quarterly. The cash buckets get topped back up from dividends and the occasional contribution, not from selling anything.
What surprised me: the runway bucket changed my relationship to my job and my portfolio more than any other financial decision I've made. The portfolio can do whatever the portfolio does — I'm not selling for at least a year. That single fact removes most of the emotion.
What I'd do again: the three-bucket structure exactly. What I wouldn't: keep the runway in CDs. The T-bill ladder is better in almost every way and slightly easier to manage once you've done it once.
A note: these buckets only work if you don't move money between them on a whim. The friction is the feature.