YNABing in retirement? Cash vs equities for irregular expenses

As long as you keep cash under 10% of your total portfolio, it won't create much of a drag on growth.

You might run through some thought exercises. If you cut your cash to 2-3 months' worth of living expenses then needed both a major car repair and had unexpected medical expenses, how would you feel needing to sell some shares to cover the additional spending? If that would feel fine because you value maximizing growth potential and optimizing taxes, then 2-3 months' worth of cash is probably fine for you. If you would feel stressed by that then 2-3 months' worth of cash is probably too little.

I prefer to assign an allocation to cash so that it's treated like any other asset in the portfolio and—to Big ERN's point—it gets rebalanced along with everything else.

I hear ya. I'm in this weird "twilight" phase of FI myself where I'm not really accumulating (adding to my portfolio) and I'm not really drawing down (much) because I have my own business that mostly pays for itself and me. (On occasion I do have to draw down a tiny bit… Four figures, usually.)

Because of my sole prop business and wanting to sleep well at night, I do tend to have $30-40,000 in cash.

Dunno much about YNAB but I say do what lets you sleep at night.

However, if you did have some insane emergency come up, one thing to keep in mind is almost nothing needs an immediate, upfront payment, even in an emergency. Car repairs can go on a credit card and then be paid a month down the line before you even rack up any interest. Medical expenses, ambulance rides, etc. can be delayed for months without going into any kind of collections.

In other words, you'd have time to decide what money to move where. And if worse came to worst, you could also take contributions out of your Roth IRA if you have one.

I'm not a financial or tax advisor, yadda yadda.

Not a YNAB user, but one unexpected cash "source" for me has been from capital gains harvesting. In my case, I most recently harvested gains in December and because I tend to keep minimal cash on hand, I decided to leave the proceeds of the sale in cash instead of immediately reinvesting (which is generally what someone does when harvesting gains). If you are able to harvest capital gains in your taxable brokerage, then that might provide you cash to cover several months-worth of whatever you happen to need in the way of irregular expenses.

Either way works and won’t be that much of a difference for the dollars you’re talking. I prefer the keep in equities as it’s still liquid and if you have a few diversified assets then something will be up when you need the cash.

But at the same time, if extra 10-40k of cash lets you sleep better at night, then cash it is.

And congrats to you for taking the time with the little one!