Personal Finance Chapter 4

Personal Finance Chapter 4 - baj01275_c04_075-105.qxd...

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4 MANAGING YOUR CASH AND SAVINGS Cash Management Strategies Starting Point Go to to assess your knowledge of cash and savings management. Determine where you need to concentrate your effort. What You’ll Learn in This Chapter Cash management Financial institutions Financial products and services After Studying This Chapter, You’ll Be Able To Assess your need for cash management products and services Evaluate the differences among providers of cash management products and services Choose cash management products and services that are important to your financial plan Compare cash management account options based on liquidity, safety, costs, and after-tax annual percentage yield Select appropriate tools for dealing with cash management errors baj01275_c04_075-105.qxd 2/09/07 02:06am Page 75
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INTRODUCTION Everyone manages cash. Your very first exposure to personal financial manage- ment was probably related to cash management. Perhaps you received a small allowance when you were a child and had to decide how to spend or save the money. Access to cash to meet transaction needs and emergencies is essential to your financial plan. A central part of your cash management strategies involves choosing cash management services, such as checking and savings accounts. This chapter helps you evaluate companies and the cash management services they offer. After you select the options that best meet your needs, you can implement your plan. 4.1 Objectives of Cash Management Many people are guilty of occasionally, or not so occasionally, neglecting to balance their checkbooks or making bill payments after they are due. Keeping track of your cash and paying your bills are both important tasks associated with cash manage- ment. Cash management includes all your decisions related to cash payments and short-term liquid investments. As discussed in Section 2.2, liquid investments are those that can easily be converted to cash without loss of value, such as the money in a checking or sav- ings account. Although you can leave money in these accounts for longer peri- ods, they are not generally the best choice for long-term savings, so we can also think of cash management as decisions related to investments of one year or less. When you hold cash, whether it’s in your pocket or in a bank checking or savings account, you incur certain costs. For one, you give up the opportunity to invest those dollars to earn a higher rate of return. Most people hold some of their money in a checking account. In some cases, this account might pay a small amount of interest, but in most cases, it does not. In fact, you may even pay for the privilege of holding money in certain types of accounts. The lost interest is an important consideration. For example, if you carry an
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This note was uploaded on 11/15/2010 for the course FP/101 FP/101 taught by Professor Nicoleramig during the Spring '10 term at University of Phoenix.

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Personal Finance Chapter 4 - baj01275_c04_075-105.qxd...

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