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How do you calculate the appropriate amount of cash to hold across my accounts?

We estimate the value of an appropriate emergency fund based on an assumption that your annual expenses are 80% of after-tax income and the average emergency fund is designed to cover 4.5 months of expenses (37.5% of annual expenses). The emergency fund is therefore equal to 30% of your annual after-tax income (80% x 37.5%).

We subtract your estimated emergency fund from your cash accounts first, and then any additional amount from your investment accounts. The remaining cash, if any, is considered excess cash.

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