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Cash Management Tips for Everyone

Finance 101 doesn’t have to be difficult. Most people believe that cash management is limited to investment experts or accountants. Cash management need not be limited to just keeping tabs on your expenses, monitoring budget, and keeping your checking account balanced. Managing cash is not only for people with substantial income or corporations. It can be applied to a normal household income as well.

Cash management is simply maximizing the income potential of your funds by making a schedule of regular and estimated expenses and matching these with your investment terms. Like any corporation, we can make a simple cash management structure at home. The first step is determining how much you spend on a regular basis, maintaining cash for emergencies, and setting up a portion of your regular income that will be placed in either short term or long term investments. These way you make more investment income from your funds.

Once you have a segregated your income into expenses, petty cash (cash that can be immediately used for emergencies), short term investment, and long term investment, go to your bank and talk to an account officer who can give you your investment options. You don’t have to be an expert. Your bank specialist can explain the investment to you in layman’s terms. There only important things to learn in an investment are (a) term (how long cash is invested), (b) interest rate, and (c) risks. Don’t be intimidated by the word risks. Your bank officer can explain this to you. There are low risk investments available in the market. Though they don’t earn as much as the high risk ones, you can at least sleep at night knowing your money is safe. Also, it is important to maintain your investment only up to the maximum level that it is insured. This is important especially with the current economic crisis when even the giants like AIG are in trouble.

Maintain short term and long term investments and keep a good record of them for monitoring. You can allocate a certain portion of your monthly income in short term investments for expenses that have to be paid on quarterly, semi-annual, or annual basis. Not only does your money make income, but it is safe from any temptation to buy unnecessary things that could put you in trouble when payments become due. On the other hand, long term investments are for those dreams that we look forward to in the next 3 to 5 years like a new house or your children’s college tuition.

Don’t keep your idle funds in savings or checking accounts which barely earn anything. Talk to a bank officer and find out where you can safely invest your money. Interest income may be minimal, but it is better than letting it stew in your account while your bank makes more money out of it than you.

Tags: cash management, long term investments, make money, short term investments   Posted in Money & Biz