STOP & SAVE

by D. Babbs

Over the last few months, I’ve noticed I have bad cash management. The money in my checking accounts keeps decreasing, while my credit card bills keep increasing. As I try to save money for spring break in a few weeks, I know I need to stick to a strict budgeting plan. In general, whether or not you are saving for a particular event, it is good to develop good cash management skills. Cash management means how you manage cash and other liquid assets to meet your personal financial goals. So as always, I have some tips and information regarding cash management:

--Cash management is an essential part of your emergency fund. Your emergency fund should be a resource that can be used to meet your unexpected needs for cash--you know those real emergencies, not buying a pair of party shoes. The rule of thumb for an emergency fund is to have sufficient liquid assets to cover three to six months of expenses.

--One of the trade-offs regarding cash management is the spending/investment risk: cash on hand is easier to spend than other financial assets. Nonliquid financial assets generally require time and effort to convert to cash, but cash is readily available to spend. Thus, keep an adequate amount of cash that will not tempt you to spend.

--It is important that you plan and spend sufficient time on your financial responsibilities each week to ensure that you are moving towards your financial goals. To achieve any goal, you must work on it. Hence, achieving financial goals requires a lot of time and effort. One should constantly budget their income and expenses, and see whether or not goals are becoming more attainable.

--There are many different alternatives for helping you manage your cash, and each alternative has its own benefits and costs. Before making any decision, you must research your options and see which one best suits your needs and ability to reach any financial goals. Some cash management alternatives include checking and savings accounts, CDs, money market deposit funds, and treasury bills. The best way to evaluate cash management alternatives is to review the characteristics of each type of account, such as liquidity, minimum balances, interest rates, safety, costs, and benefits.

It’s important to learn good cash management skills now so adults, we can just build on our foundation.

Sources:

http://personalfinance.byu.edu/?q=node/572

http://personalfinance.byu.edu/?q=node/303

http://personalfinance.byu.edu/?q=node/585