Let’s talk about cash.

It might not be the most exciting part of your portfolio, but it’s absolutely essential. I often find that people either hold too much cash or not nearly enough. Here are four essential rules for effective cash management, from building the right emergency fund to knowing where to park your money and when to invest excess cash.

1) Keep 3-6 months of expenses plus short-term goals

The foundation of smart cash management is an emergency fund. This should cover your essential living expenses, such as housing, food, and utilities, for three to six months. An emergency fund provides a buffer against unexpected events like job loss, medical emergencies, or major home repairs.

It’s important to tailor this amount to your personal circumstances. If you have a very stable job and multiple income streams, perhaps three months is sufficient. If your income is more volatile, you’re self-employed, or you are the sole breadwinner, you might want to lean toward six months or longer.