RebelCapitalist: Financial Information for the Rest of Us

Cash and Liquidity

Dec 18, 2009 | By: Mr_Blue | Comments | Permalink | Tags: financial conglomerates, tarp, cash flow, cash, liquidity, cash management

Cash and liquidity are very important considering our current uncertain economic situation. Heck, the financial conglomerates horded cash that was given to them via Wall Street bailout and TARP and remained very liquid during this economic crisis. We should take a page from the financial conglomerates’ play book and do the same thing.

The key to cash and liquidity is cash management. Cash management is the management of cash, liquid assets and outflows (dont’ forget this). We know what cash is but what are liquid assets. Liquid assets include cash and other investments that can be quickly and easily converted to cash with no loss. Liquid assets include money market deposit accounts, certificates of deposit (CDs), money market mutual funds, U.S. Treasury Bills (T-Bills) and U.S. Series EE Bonds (Savings Bonds). We need liquidity to address any future unplanned events such as unemployment or unanticipated medical issues.

But don’t forget the cash outflows. Good cash management requires the management of our money “going out the door.” We manage cash outflows by (broken record time) setting written: goals, priorities, monthly budget (in line with goals and priorities) and managing that monthly budget.

Ultimately we want:

Cash Inflows (salary, wages, investment/interest income) > Cash Outflows

If we can do this and sock away that monthly cash surplus into some long-term investments we will be much better off in the future. More on this topic later

Good luck.

P.S. Here is a Monthly Budget Form