Cash Flow

While a budget generally looks at your expenses on a monthly basis, cash flow refers to your management of money coming in and going out. The goal, of course, is to make sure you have the cash on hand to pay necessary bills and expenses. People sometimes run into trouble when bills are due before they have the cash on hand to pay them. For example, if you make $1,000 every other week, and your expenses for the month total $1,800, in theory, you have enough money. However, if $1,200 is due before the 15th of the month, you might not have enough in cash to pay your bills on time.

You have a few options to improve your cash flow management. First, make a list of your expenses and their due dates, noting when income is added to your account. For example:

Date Details Deposits (Credit) Withdrawals (Debit) Account Balance
        $1,000
1/1 Rent   $650 $350
1/5 Car Payment   $300 $50
1/7 Cell Phone   $80 -$30
1/14 Internet/Cable   $170 -$200
1/15 Paycheck $1,000   $800

For the short term, you may be able to ask your creditors to adjust your due dates. In this example, if you could change the cell phone and internet/cable due dates until after that first paycheck, you’d be able to pay those bills on time. It’s also a good idea to allocate money throughout the month for variable expenses, such as groceries and gas. For the long term, as you continue to save money, you’ll want to build enough of a cushion in your account to accommodate monthly fluctuations.  

Banking Options

Looking for the best way to grow or manage your money but not sure about the best options? Here's a short list of savings vehicles to consider for saving and growing your money:

Checking Account. This account is generally used for everyday expenses. A checking account will usually include checks and a debit card that can be used much the same way as checks to pay bills and purchase items from stores or online.

Savings Account. This account is where you can put aside money to accrue interest and is separate from your checking account. Your money is still accessible, though you’re limited to six withdrawals a month, and interest rates may be lower than those of other savings options.

Money Market Account. This account is another money-saving option that typically offers higher interest rates as well as check-writing privileges. Generally, you need to maintain a certain balance in order to earn dividends (or interest). If you go below the minimum balance, you may be charged fees. If you’re unable to maintain the minimum balance, the higher interest may not offset the fees.

Certificates. This product generally offers higher interest rates than savings and money market accounts, but locks the money for a specified period of time. Early withdrawal will often incur a penalty, so this option is good for money you know you won’t need immediately. Because it’s not easily accessed, certificates can be a good way to save for your long-term goals.

Spending Options

When it comes to spending money, your options are usually paper (cash and checks) or plastic (debit and credit cards). Both credit and debit cards offer security and convenience that cash and checks don’t, but the key difference between the two is how they're processed. A credit card purchase draws against your line of credit, and you’ll be billed for it at the end of the billing period. A debit card purchase draws money directly from your checking account like a check, but unlike a check, the transaction happens immediately.

Credit Card. A credit card allows you to borrow money to make purchases and can be used to buy everything from groceries to vacation packages. The card issuer sets up a line of credit, which means that you'll be allowed to borrow up to a certain amount, and you only pay for the amount you use. You may be subject to paying interest (a fee that's a percentage of your balance), depending on the terms and conditions of the card and whether or not you pay off the balance each month.

Debit Card. With debit cards, you can make purchases, withdraw cash from an ATM or get cash back at checkout. Although you won't be paying interest, you may be charged a fee if you use another financial institution's ATM. (Although some banks and credit unions refund some or all of these fees.) Unlike credit cards, debit cards don't create a debt unless you overdraw your account. Signing up for overdraft protection, however, can limit fees you may incur if you do overdraw. Some debit cards have daily purchase amount limits, so they may not be the best choice for making large purchases.

A credit card purchase draws against your line of credit, while a debit card purchase draws money directly from your checking account.

Choosing Between Debit and Credit

There are times when using a credit card may make more sense than a debit card and vice versa. Knowing the benefits of both can help you decide when to use each type of card:

The Merits of Credit

You can earn rewards. Many credit cards come with rewards perks. As you spend money, you can earn airline miles, cash, discounts or points.

You build a credit history. When you pay your credit card bills on time, your credit score slowly improves. A good credit score is important for future loans and even for lower insurance rates, renting an apartment and employer credit checks.

You can rent cars and book hotels more easily. Many rental car companies and hotels won’t let you make a reservation without a credit card. This is primarily because they run the risk of being unable to charge for damage and other fees if your associated checking account doesn’t have the cash to cover the charges. If they do permit debit card use, they may put a hold on funds in your account.

You have extra safeguards when traveling and purchasing items. Many credit cards come with extra benefits you might not be aware of. These can include everything from extended warranty protection to rental car insurance and even travel insurance. Usually all you need to do is make the purchase or booking with your credit card for coverage. Take a look through your credit card’s fine print to see what benefits await.

The Merits of Debit

You may have lower costs. Outside of one or two fees such as for overdrawing your account, debit cards usually don’t tack on extra costs. Unlike credit cards, you won't be paying interest because you aren't borrowing money. 

You won’t rack up debt. Debit cards withdraw funds directly from your checking account, and the transaction happens immediately. This means you only spend the money you have and you'll find it easier to track how much money you have at any given moment.

You don’t need a strong credit score. With a debit card, you usually need a checking account, and unlike a credit card, getting a card isn't tied to your credit score.

Tools for Managing Your Money

No matter your method of spending, you can manage your money with the help of various financial tools:

Mobile/Online banking: Most financial institutions offer you secure 24/7 access to your accounts through mobile apps and online banking. Features include the ability to pay bills, manage accounts, make deposits and order checks. Some even allow you to apply for loans, open new accounts or enroll in direct deposit, wherever you are.

Budgeting tools: Budgeting websites and some financial institutions’ programs and apps can help simplify money management, too. Some allow you to view detailed expense breakdowns so you can track spending habits, while others link multiple accounts, automatically pulling in transactions and listing them together for easy viewing.

Notebook or spreadsheet: You don’t always take the old-fashioned route and use paper and pen to track your expenses! The manual nature of jotting down or typing in each purchase as it happens can be an effective wake-up call to poor spending habits.

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