The Challenge: Ensuring Financial Stability Without Holding Too Much Cash

Polly Partner wanted to build a strong financial foundation while keeping enough liquidity on hand to handle unexpected expenses. The challenge was striking the right balance—keeping sufficient cash available without letting excess money sit idle in low-yield accounts.

Like many high-income professionals, her earnings were substantial, but her family’s expenses were also significant, with student loan repayment, high mortgage payments, tons of travel for celebrations (it’s that time of life for her and her friends), annual capital account contributions, mandatory retirement savings (a good thing), and unpredictable equity profit distributions.

She needed a strategy to:

Maintain liquidity for large annual expenditures, emergencies, and even for flexibility to book those spur of the moment trips that she works so hard to be able to afford
Avoid unnecessary opportunity costs from excess cash sitting in a checking account
Establish financial resilience in case of a job change, market downturn, or unexpected expenses

How We Helped: Structuring a Multi-Layered Liquidity Strategy

We created a tiered liquidity and resilience plan that allowed the client to access funds when needed—without disrupting their long-term investment strategy. Here’s how we structured it:

Primary - Cash Reserves – We recommended keeping one month of expenses in her bank account (about $20,000) and then another $80,000 in a tax-free New York municipal money market fund. This brought her primary liqudiity fund to a total of $100,000, covering about 5 months of total expenses.

The idea is that the one month of expenses cylces in and out of the account each month, so we’re not too concerned about interest on those dollars. However, the money market fund provided relatively easy access to her cash while earning a yield higher than a checking or savings account, after accounting for federal and state taxes on the interest.

However, given that Polly’s workplace and individual disability insurance policies would not start paying her benefits until after 180 days, we knew that we needed to have additional liquidity in place to cover a gap of a loss of income for up to 6 months.
Secondary - Personal Line of Credit – Since some banks offer unsecured lines of credit to attorneys and other high-income professionals, we helped her work with her firm’s preferred lender to obtain a personal LOC that could serve as a final safety net.
Secondary - Investment Portfolio Line of Credit (LOC) – Since Polly had a taxable brokerage account with over $250,000 in assets, we helped her establish a securities-backed line of credit (SBLOC), which allowed her to borrow against her investments, if needed. This provided liquidity without forcing the sale of investments, helping her to potentially avoid unnecessary capital gains taxes.
Secondary - Home Equity Line of Credit (HELOC) – With over 30% equity in their home, we advised setting up a HELOC, which could serve as an additional liquidity source in the event of an emergency or temporary cash flow shortfall. The key advantage here versus a home equity loan was that interest would only be charged on the amount actually borrowed, making it a flexible, low-cost backup plan.

While Polly did not need to use any of these credit lines, having them in place provided additional peace of mind. Additionally, our help in going through the process of obtaining the lines saved Polly lots of time and energy.

The idea with these lines is that they are backed by high quality colateral, and therefore generally come with an interest rate lower than that of a credi card. Ideally, there is never a cash crunch so significant that Polly has to tap one or more of these credit lines, and certainly she should never use them for anything frivolous. That being said, they offer significant peace of mind that she has multiple backstops in place in case a major catastrophe ever strikes.

The Outcome: A Resilient Financial Plan Without Excess Cash Drag

By structuring their liquidity in layers, the client was able to:

Keep $100,000 in short-term cash instruments to handle short-term liquidity needs while still earning decent interest
Gain access to additional liquidity through credit lines without incurring unnecessary interest costs or ongoing fees
Avoid over-allocating to cash while keeping investments working toward long-term goals and reducing the anxiety created by temporary market swings
Feel confident in her financial stability, even if faced with unexpected expenses

This approach ensured that Polly had liquidity when needed—without sacrificing her long-term financial growth and independence.

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