Inflation in the U.S. is the highest it's been in 13 years, according to the latest numbers for September. According to the Department of Labor, total inflation was 5.4% year over year. When excluding food and energy, inflation was still at an alarmingly high 4%.

In this video from Motley Fool Backstage Pass, recorded on Oct. 5, Motley Fool contributors Jason Hall and Jon Quast tackle the subject of inflation. Jon explains why he counterintuitively has a lot of money in cash at the moment, even though the current high rate of inflation would suggest the need to have that cash parked in appreciating assets instead. 

Jason Hall: Inflation. Here we go again. Continues to worry a lot of people, oil prices continue to go up. I read an article today that was talking about natural gas prices in Europe. This might blow your mind. Gas prices in Europe are the equivalents of oil being over $200 a barrel. It's bananas. Energy prices are putting pressure on everything, used car prices, housing prices, all of those things are happening.

Then on the flip side, think about interest rate yields. If you have cash and savings, we think about cash a lot of times as being the super safe thing. In the short term, that's true because it's predictable in terms of its spending power, at least in months and within a few years. But over the long term, it's not safe because of inflation. That means it's going to actually lose spending value.

What I wanted to do, guys, Jon, I want to ask you to kick us off here. Thinking about cash, what do you think is enough cash, and that's in two different ways. There's both in your personal savings for real-life expenses and then cash to keep in your investing accounts.

Jon Quast: Yeah. Thanks, Jason. Just thinking about this topic of inflation off the top of my head. I think that right now the popular debate is how much is inflation going to be? But really, year-in and year-out, there is inflation. One way or another, it's either a little bit or some years it's more than normal. But either way, inflation is a long-term trend. This is why you really do want to have money invested in things like the stock market because it's risky not to, in a way. It's called the opportunity risk. You have to grow your capital,  in some way. You're losing money if it's staying on the sidelines.

We don't want to overdo it, but to the same token we don't want to under-do it. I'm a big fan of Dave Ramsey as far as his approach to personal finance, I really appreciate a lot of things that he has to teach. One of his teachings is you have three to six months of living expenses in an emergency fund.

Hall: How much is your rent? How much is your health insurance going to be? How much is your electricity bill going to be? How much do you need for food? How much do you need for gas to drive your kids to school? That kind of stuff.

Quast: Exactly. This is to keep the lights on, to keep food on the table, and to keep you, in the case that you lose your income, keep you from having to settle for the first new income stream that comes along. Three to six months, now you have options. I really think that's a powerful thing.

Then also, I like to keep money in cash that I think I might need in the next three to five years. Why is that? I'm going to quote Dave Ramsey here. He just said this the other day, and I thought it was so funny and so true. He said, "Your financial plan is this beautiful, yellow brick road, but you forgot to account for the flying monkeys." There are flying monkeys. There are things that are going to derail your financial plan. If you think that you might need something in the next three to five years, that's not for the stock market. It's really not, because it's so unpredictable. You don't know when a bank in China is going to go bankrupt and knock the whole thing down. You don't know when Enron is going to be caught in doing all sorts of things. You don't know when these things are going to happen. They could happen now. It could happen next year. If you need the money in the next three to five years, you know you're going to need, it shouldn't be in the stock market.

For me, personally, I have some money on the sidelines. I know that I'm going to have medical expenses in the next year for a family member. I know that I'm saving up for an investment property, a piece of real estate that we want to put it on Airbnb, saving up for that. That's in my three-to-five-year plans. That's cash on the sidelines. I know it's not making the best return, but I'm also insulating myself from the unexpected crash in the stock market.

Then in my investing accounts, I don't like to keep more than 10% in cash. I like to keep some cash on the sidelines. You really like it in March of 2020 when there's deals out the wazoo that you can take advantage of, but you don't want that opportunity risk where you're keeping cash on the sidelines and you're saving it up and now the markets rattling off 40% gains and it's only going to pull back 10%. You've just missed out on a great bull run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.