Retirement planning is not all about investment growth and asset allocation. Cash is an often overlooked, yet essential way to stabilize your income, improve your ability to handle unanticipated expenses, and to become financially flexible.

Here’s a short, practical guide for setting up a robust cash management strategy using three types of cash “buckets”:

  • Operating cash (zero- to six-month horizon): This is the money you use to meet daily cash management needs, such as paying bills or living expenses. You may want to focus on putting your cash into low-risk options, such as a bank checking or savings account that gives you ready access to funds.
  • You may need periodic access to funds to pay for planned needs, such as holiday gifts, an annual vacation or paying for insurance premiums. The focus for this bucket is not primarily liquidity (meaning you are comfortable tying up your money in a short-term CD or Holiday Club account that may offer incremental yield, but limits when you can withdraw funds).
  • Strategic cash (12- to 24-month horizon): For major intermediate-term goals such as paying for college tuition, you can set up a strategic cash bucket that identifies how much cash is needed ahead of time. You’ll want to balance risk and return depending on how far out the bills are due.

When planning for financial needs that are well into the future, savings and investing can be the preferred tools to use. But if you have short- to intermediate-term goals, a well-crafted cash-management approach can be an important part of your wealth planning activities.