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Managing Your Cash. Family Economics & Financial Education. Did You Know?. Small amounts saved and invested can easily grow into larger sums. If a person saved a dollar each day by not having a candy bar or soda, they would save $365.00 per year!
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Managing Your Cash Family Economics & Financial Education
Did You Know? • Small amounts saved and invested can easily grow into larger sums. • If a person saved a dollar each day by not having a candy bar or soda, they would save $365.00 per year! • If the $365.00 dollars was deposited into a certificate of deposit (CD) with 5.0% interest, the money could grow to nearly $400.00 in one year!
Cash Management Cash Management • The daily routine of handling money to take care of individual or family needs.
Cash Management Effective cash management includes having available money for: • Living expenses; • Emergencies; • Savings; • Investing.
Cash Management Tool Cash Management Tool • A financial account used to assist with daily cash management. • Five types of cash management tools: • Checking Account; • Savings Account; • Money Market Deposit Account; • Certificate of Deposit; • Savings Bond.
Checking Account Checking Account • Tool used to transfer funds deposited into an account to make a cash purchase. • Funds are easily accessed by: • Checks; • Automated teller machines (ATMs); • Debit cards; • Telephone; • Internet.
Checking Account continued • Reduces the need to carry large amounts of cash. • Features may include: • Non-interest or interest earning; • Minimum balance requirements; • Charge transaction fees; • Limited number of checks can be written monthly.
Savings Account Savings Account • Account to hold money not spent on consumption. • Money may be accessed or transferred between accounts through: • Automated teller machines; • Telephones; • Internet.
Savings Account continued • Featuresmay include: • Allows for frequent deposits or withdrawals; • Easily accessible; • Money storage for emergencies or daily living; • Available at depository institutions; • May require a minimum balance or have a limited number of withdrawals.
Money Market Deposit Account Money Market Deposit Account • A government insured account offered at most depository institutions. • Have a minimum balance requirement with tiered interest rates. • The amount of interest earned depends on the account balance. • For example: a balance of $10,000 will earn a higher interest rate than a balance of $2,500.
Money Market Deposit Account continued • Features of may include: • Minimum amount required to open the account, often $1,000; • Usually limited to three to six transactions each month; • If the average monthly balance falls below a specified amount, the entire account will earn a lower interest rate.
Certificate of Deposit (CD) • Certificate of Deposit (CD) • An insured, interest earning savings instrument with restricted access to the funds. • Found in depository institutions accepting deposits for a certain length of time.
Certificate of Deposit continued • Features of may include: • Range from seven days to eight years in length; • Minimum deposits range from $100-$100,000; • If funds are withdrawn before the expiration date, penalties are assessed; • Low risk and no fees; • Interest rates vary depending upon specified time length. • The longer the length, the higher the interest rate.
Savings Bond Savings Bond • Discount bond purchased for 50% of the face value from the U.S. Government.
Savings Bond continued • Features of may include: • Many different types available; • Can be purchased for $25.00 - $10,000.00; • A $100.00 bond would be purchased for $50.00. When the bond matures to $100.00, it can be redeemed. • Interest earned on a bond is tax exempt until redeemed. • No taxes are due on interest earned. • It will be tax exempt when redeemed if used for college expenses.
Liquidity Liquidity • How quickly and easily an asset can be converted into cash. • Investors should: • Invest in both liquid and non-liquid tools. • Liquid assets are important for emergencies when cash must be quickly accessed.
Low Risk These five cash management tools are low risk: • Protected by the U.S. Government against loss. • Insures the funds so the consumer does not lose money on the investment. • However, they have lower interest rates. • Causes low returns.
Investment Risk Pyramid Speculation Increasing safety of principal Increasing potential for higher returns Growing risk of loss of purchase power Growing risk to investor’s capital Growth Safety and Income Financial Security (Cash Management Tools)
Summary • Cash management is a daily routine of handling money to have enough funds for: • Living expenses; • Emergencies; • Savings; • Investing.
Summary • Five types of cash management tools: • Checking account; • Savings account; • Money market deposit account; • Certificate of deposit; • Savings bond.
