Emergency Fund: How Much Cash Is Actually Enough?

Every finance channel on this platform tells you the same thing. Six months of expenses in cash. Twelve if you're self-employed.

I have three.

And in about eight months, I'm borrowing two hundred and seventy-five thousand dollars against my stock portfolio to pay off a balloon payment.

So before anybody in the comments does it for me — yeah, I know. On paper that's reckless. I'm about to turn fifty, I run multiple businesses, my income swings, and I'm carrying less cash than the internet says a college kid should carry.

Here's why I'm doing it anyway. And here's the part where I tell you honestly what it costs me.

The Number

So let's start with the number, because that's what you clicked for.

Three months. Three months of personal expenses, sitting in a high-yield savings account. That's it. That's my cash position.

And I want to be precise about why, because the usual answer is "I'm optimizing my returns," and that's not really it.

I'm about to turn fifty. I've got no inheritance coming. No safety net. And I spent a big chunk of my adult life with retirement accounts I had to close out just to keep businesses alive. So I'm not in the accumulation phase people my age are supposed to be in. I'm in the catch-up phase.

When you're catching up, idle cash is expensive. Not expensive in some abstract textbook way. Expensive in the sense that every dollar sitting in savings is a dollar not compounding in the years I've got left before I'd like the option to stop working.

So I hold the minimum I can hold and still sleep. Three months is that number for me. It might not be yours.

The Housekeeping That Makes This Honest

Before we go further, I have to explain something, because otherwise that three-month number is misleading.

Those three months are personal. Only personal. And that's not an accident; it's a rule I learned the hard way.

I keep personal money, business money, and property money in completely separate accounts. My businesses have their own cash. The villa in the Dominican Republic has its own account — rental income flows in, expenses come out. And then there's my personal money, which is what we're talking about today.

Here's why that matters. There is a lot more cash sitting in my business accounts than in my personal account. And I will not touch it.

A business is like a baby. A baby needs food to grow. A business needs cash to grow. Starve it, and it stops growing, and then it dies. That money isn't mine. It belongs to the company, and it has a job.

Honestly, the only reason I can answer "how much cash do you hold" with a straight face is that separation. Most entrepreneurs can't answer this question. Their money's in one pile, and they think they're fine right up until they aren't. If you take one thing out of this whole post and you run anything at all — separate the accounts. Today.

Why Three Months Matters So Much to Me

For most of my life, I did not have an emergency fund. Not a small one. Not any.

I want to be clear about what that does to a person, because people talk about emergency funds like a spreadsheet line item. It isn't. When you've got no cash, every bad thing that happens turns into a permanent decision. The car breaks, and it goes on a credit card. The business has a slow quarter, and you close out a retirement account and eat the penalty. That's not hypothetical for me. That's my actual history. More than once.

An emergency fund doesn't stop you from making bad decisions. It stops your bad decisions from becoming irreversible.

So three months isn't a lot. But it's the first time in my life that number hasn't been zero. And that's exactly why it's untouchable. Whatever else happens, that money does not move.

The Big Thing Coming

Running lean like that is fine, right up until you've got something big coming. And I do.

March 2027. I've got a balloon payment coming due on an oceanfront villa on the north coast of the Dominican Republic that I own with a business partner. It's owner-financed, which is normal down there, and the structure is a five-year loan amortized over twenty. So the payment feels comfortable for five years, and then the entire remaining balance comes due at once.

That number is two hundred and seventy-five thousand dollars.

I'm not selling stock to pay it. I've got positions up fifty percent, seventy-five percent, over a hundred. Selling those means writing a check to the IRS for the privilege. So instead I'm taking a line of credit against the portfolio. I keep the shares, I keep the dividends, and I borrow against them. I wrote a whole post on that mechanic and why I passed on refinancing my condo instead — what I want to talk about here is the thing that actually keeps me up: what my cash position has to do with all of it.

Why Not Just Stockpile Cash Now?

Here's where the smart comment shows up. "Mikey, if you know you've got a huge payment coming, why aren't you stockpiling cash right now?"

Fair. And I'm not. I'm going to keep investing every extra dollar right up until March, and then I'm going to borrow.

Two reasons.

One is the math, and this one cuts against me, so let me say it plainly. Cash in a savings account right now earns you somewhere in the threes. A line of credit against a portfolio costs meaningfully more than that. So if I stockpile cash and then turn around and borrow anyway, I'm paying for the privilege of holding money. That's a real, guaranteed loss on every single dollar I park.

Two is what that cash costs me in the market. Eight months of contributions sitting in savings instead of invested — at almost fifty, playing catch-up, I don't love that trade either.

But here's the honest part. Reason one is only true if nothing goes wrong. If the market drops, that expensive, inefficient pile of cash is suddenly the most valuable thing I own. I'm choosing efficiency over insurance. That's a bet. And I want to be very clear that I know it's a bet.

What Actually Goes Wrong

When you borrow against your portfolio, the portfolio is the collateral. If the value of that collateral falls far enough, the lender can call. They can require you to put up cash or more securities, and if you can't, they can sell your positions to cover it. Not eventually. In days. And they pick what gets sold, not you.

For me, the rough line is a twenty percent drop. Somewhere around there, I've got a problem.

And I need you to understand this isn't some doomsday scenario I'm inventing to make the point dramatic. Look at the actual history. In a normal year, not a crash year, a normal one, the market takes about a fourteen percent dip at some point along the way. That's average. 2022 dropped twenty-five percent top to bottom. And declines of twenty percent or worse have happened fifteen times in the last hundred years.

So a twenty percent drawdown between now and whenever I pay this line off isn't a black swan. It's a Tuesday that shows up every so often.

Which is why my plan, the day I draw that line, is to start paying it down immediately. Aggressively. Until the cushion is big enough that a normal bad year can't touch me. I'm not sitting here hoping the market cooperates. Hope isn't a plan.

The Order of Protection

So if it does go wrong, what actually protects me? Here's the order, honestly.

First, business income. The business services that loan. That's the plan, and that's the primary.

Second, dividends. If business income gets soft, the portfolio's still paying me whether the market's green or red. That's the entire reason I hold dividend payers in the first place. It's the counterweight to the risk I'm taking everywhere else.

Third, cash. And this is the layer I don't have. That's the gap. That's what this whole post is about.

Fourth, sell appreciated stock and pay the capital gains. Bad. Survivable.

Fifth, worst case, I cash out a retirement account, eat the penalty and the taxes, and set my catch-up back years. I've done that before, in a different life, and I swore I'd never do it again. It's still on the list. Being honest about the list is the whole point.

A Confession, Not a Recommendation

So — how much cash do I hold? Three months. Less than every rule of thumb says I should. And I'm about to stack a two hundred and seventy-five thousand dollar obligation on top of it.

That's not advice. That's a confession.

The question was never "how much cash should you hold?" It's how much risk you're already carrying everywhere else in your life, and whether you can actually sleep with the gap between those two numbers. I run businesses. I've got a property with a partner and a hard deadline. My income doesn't show up on the fifteenth and the thirtieth. By any reasonable reading, I should be holding more.

I'm choosing not to. Eight months from now, I'll find out whether that was smart or stupid — and I'll tell you either way. That's the deal.

Watch the full video above or on YouTube: https://youtu.be/sbFgJTrG628