Manage Personal Cash Flow as if You are a Business

personal cash flow Cash Management is vital to the success of a business because it allows the business to pay it's bills while using cash efficiently to fund day to day operations. Consumers can benefit from managing their own cash in much the same ways a business does. Being able to project cash flow can allow consumers to better plan for expenditures and avoid dipping into savings or using credit to make up the shortfall.


Cash Available and Bank Balance are Not the Same – Cash available is the amount of cash you have immediate access to minus the anticipated expenses for the near term. Many people get themselves into trouble financially because they don't have a clear understanding of their cash needs for 2-3 months in the future.


Cash Flow Projection – One of the easiest ways to project your cash flow is to use financial software such as Quicken. The Cash Flow Calendar in Quicken shows your projected cash flow months and even years in advance. A trick that I used was to enter budget items like auto repair and vacation savings as a recurring bill. By doing it this way they would show on the cash flow calendar and I would have a much more accurate picture of my cash flow for the remainder of the year.  I could also perform what-if scenarios by entering recurring transactions and see the impact on cash flow.


Sources of Cash in Emergencies – Sometimes the unforeseen happens and you may find yourself short on cash. A properly funded easy access savings account with an emergency fund of 3 to 6 months of expenses will allow most individuals to handle most emergencies. However, there are other sources for cash such as liquidating assets, taking a second job,  or short-term financing. Each has it's advantages and disadvantages so research your options before making a decision.


Make Your Cash Work for You – Credit Unions are by far the best choice for most individuals with small cash balances as their fees are generally less than large banks. For those that have large cash balances the options are greater. Most banks and brokerages have cash management accounts that allow you to write checks from a money market account which typically pay more than conventional savings accounts. Laddering CDs to mature at 1-2 year intervals is another conservative alternative to obtain higher returns and still ensure you will have liquid funds available.


Readers: What strategies do you use to manage your cash?

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