Chapter 5: Cash Management
Chapter 5: Cash Management AAEC 2104
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This 4 page Class Notes was uploaded by Jennifer Cartwright on Saturday March 19, 2016. The Class Notes belongs to AAEC 2104 at Virginia Polytechnic Institute and State University taught by Dr. White in Spring 2016. Since its upload, it has received 33 views. For similar materials see Personal Financial Planning in Agricultural & Resource Econ at Virginia Polytechnic Institute and State University.
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Date Created: 03/19/16
Chapter 5: Cash Management Liquidity vs Savings o Liquidity = rapid cash needs Regular bills and expenses Enough to meet your usual needs o Savings = emergency needs Unexpected expenses 36- months of living expenses Financial safety net Cash management o Build your checking account Enough to meet needs Need to know monthly budget Direct deposit of paycheck into checking o Build emergency funds Automatic savings Replenish as necessary o Use cash to pay debts, invest, spend on yourself, donate Where to keep cash o In cash (not recommended) o Checking account (demand deposit) Non-interest bearing Interest bearing o Savings account (time deposit) o Money market deposit accounts Similar to a savings account Variable rate of return, usually slightly higher May have higher minimum balances and limits on withdrawals o Certificates of Deposits Loan to a bank at stated interest rate and maturity Early withdraw penalties Laddering CDs Manage money for emergency funds Invest in a series of differing maturities o Money Market Mutual Fund Mutual fund investing in very safe debt instruments May have limited check-writing abilities Fees involves Not insured, but relative safety o Asset Management accounts Sweeps account Comprehensive financial account Checking, credit card, money market, mutual funds, loans More aggressive account, higher fees and min. balances Not insured o Us Series EE bonds Very safe, low return, low liquidity Various denominations Electronic version (face value) Get the face value + accrued interest at maturity Get reduced amount if sold before maturity Not taxed at state level Tax exempt earnings if used for education Comparing Different Accounts o Rate of return Annual percentage yield Allows comparison of accounts with different compounding methods Always compare after tax apy After tax apy = pre-tax apy X (1-mtb) o Safety FDIC or FSLIC up to 250000 per depositer May take a while to get money MMMFs not insure, fairly safe o Look at convenience, fees, customer service Institutions o Commercial banks Full service, many locations On-line banking Convenience vs fees o Savings and laons and savings banks Primarily home loans and savings accounts Mostly mortgages o Credit unions Member owned Not for profit= profits go to shareholders Usually higher rates of return Lower interest rates o Online deposit accounts Reliable companies Primarily savings May be linked to credit card accounts Drawbacks Time to access your funds Fees o Brokerage firms Asset management accounts May have deposit accounts, credit/debit cards What to look for in an institution o Services and products The ones you need/want Checking, savings, debit/credit card, atms, loans, safe deposit boxes, trust o Safety Track record FDIC, FSLIC, NCUA o Fees and charges o Convenience and customer service Checking account o Opening an account Look at: Fees (monthly, per-check, online banking, overdraft, minimum balance) Operating hours and locations ATM Customer service o Using Deposit paycheck and other funds Direct deposit is great Keep receipts Write checks as needed Date, payee, amount, memo, signature Record in check register Online banking Faster, easier, schedule you payments/savings Fees? Don’t bounce checks!!!!! o Balance your check book Mark off all deposits and checks that have cleared Take the ending balance from monthly statement Add any deposits that haven’t cleared from the register Not shown on statement Subtract any checks that haven’t cleared Adjusted balance = checkbook balance Other Types of Checks o Cashier’s check From a bank or financial institution, very safe Write a check to bank plus fee They pay check out of their funds o Certified check Personal check guaranteed by bank o Money order Purchased at post office o Travelers check Specific denomination Safe, replacable Other forms of cash management o Electronic fund transfers Atms Debit cards o Smart Cards and Stored Value Cards Money is transferred to an account on the card Use it like a debit card until the funds are gone May be able to add more funds Single purpose vs multi purpose Pre-paid phone cards