Personal Finance Questions: Cash or Liquid Asset Management

Question: What is involved with proper cash management?
Nothing happens without a plan
- You need to start off with a budget to determine what your monthly living expenses are and what your savings goals are
- Once you determine how much money you need in an emergency fund, then you need to determine the best cash management options available to you
- Do you need a checking account and what other options do you need like an ATM card, Debit card and overdraft protection
- How much money do you need in your checking account to cover your living expenses and not have any overdraft fees
- Next, you need to determine how liquid your savings accounts need to be for the rest of your emergency fund balance
- Will an MMDA or a MMMF give you a better return and meet your liquidity needs? Should you give up some liquidity and purchase a CD and for how long? Your cash management goal is to maximize your return while maintaining liquidity and minimizing transaction costs.


Question: Why are liquid assets important in cash management?
Cash management begins and ends with liquid assets
- Keeping some money in liquid assets is necessary for paying bills, normal living expenses, emergencies, and to prevent dipping into long-term investments.

Question: What is a risk associated with keeping liquid assets?
One risk is the more cash you have, the more you're tempted to spend
- Access to cash or even credit can open the door to impulse purchasing
- This is the downside of liquidity, which can also affect your cash management and budget
- Cash management doesn't only involve deciding where to keep your cash; it involves managing your money and staying within your budget.


Question: List two ways to pay yourself first
You can easily use cash-management alternatives to automate your savings by having income automatically deducted from your paycheck and placed into savings.
You can be financially disciplined and set aside money from every paycheck, monetary gift, or other source of income
- If money touches your hands, your first thought should be to set aside a percentage in an interest-bearing account
- Pay yourself first!


Question: List the common deposit-type financial institutions.
- Commercial banks
- Savings and Loan Associations
- Savings banks
- Credit unions

Question: Once you have examined a financial institution's service and convenience you will want to ask three questions about their cash management alternatives - What are they?
 - What is the safety or risk involved?
- How will they correlate with my tax status?
- What is their comparable rate of return?

Question: What are the four questions you should answer when looking for a financial institution?
 
You will want to know if it offers the kind of service you need and want
- You will ask if your money will be safe
- The costs and returns associated with the services you want are concerns
- Last, you will want to know if it offers the personal service and convenience you seek.

Question: Explain the advantages of credit unions - Are there any disadvantages to them?
Credit unions enjoy a tax-exempt status because they are not-for-profit organizations.
As such, they are generally able to operate on a more efficient, smaller scale and pay their depositors more than commercial banks
- They tend to have lower fees and minimum balances associated with their accounts
- Their loans tend to be at favorable rates
- They tend to be handy, generally close to work, and offer many of the same services as banks.

The one disadvantage is that they are reluctant to provide home mortgage loans
- This could be a problem when all of your accounts are at the credit union and you must seek a home loan at an institution that is unfamiliar with you.

Question: List five features available through online and mobile banking
 - Access your accounts at any time of day.
- Check your balances and see when checks have cleared and deposits have been made.
- Transfer funds between accounts.
- Download your financial information directly into your personal financial or tax software.
- Pay bills and receive payments online.

Question: Describe the advantages of online and mobile banking.
Advantages of Online and Mobile Banking
Personal financial management support: You can import data into a personal finance program such as Mint.com, Quicken, or TurboTax.
Convenience: Anytime and anywhere, you can view and track your accounts, pay bills, and view up-to-the-minute credit card activity.
Efficiency: From a single secure site, you can access and manage all of your bank accounts, including IRAs, CDs, and even securities, and transfer funds between your checking and savings accounts or to another customer's account.
Effectiveness: Many online and mobile banking sites provide stock quotes, rate alerts, and personal financial management support, and allow you to import data into a personal finance program such as Mint.com.

Question: Describe the disadvantages of online and mobile banking.
Disadvantages of Online and Mobile Banking
Start-up time: It takes time and effort to register for your bank's online and mobile program
- If you are setting up an account together with a spouse, you may have to sign a durable power of attorney before the bank will display all of your holdings together.
Adapting: Banking sites can be difficult to navigate at first, so expect to spend some time working through the tutorials or finding your way around the site or app
- In addition, these sites periodically change, which may require reentering data.
Feeling comfortable: Many people just don't feel comfortable banking online
- Regardless of your comfort level, you should always print the transaction receipt and keep it with your bank records until the transaction shows up on your bank statement.
Customer service: The potential for poor customer service is a downside to online and mobile banking.

Question: Briefly describe each of the cash management alternatives discussed in this chapter
 - Demand deposit ? a type of checking account on which no interest is paid b
- NOW account ? a checking account on which you earn interest on the balance c
- Savings account ? a deposit account that pays interest d
- Money market deposit account ? a bank account that provides a rate of interest that varies with the current market rate of interest e
- Certificates of deposit ? savings alternatives that pay a fixed rate of interest while keeping the funds on deposit for a set period of time that can range from 30 days to several years f
- Money market mutual funds ? mutual funds that invest in short-term (generally with a maturity of less than 90 days) notes of very high denomination 
- Asset management account ? a comprehensive financial services package offered by a brokerage firm h
- U.S
- Treasury Bills or T-Bills ? short-term notes of debt issued by the federal government with maturities ranging from 1 month to 12 months i
- Series EE bonds ? a type of government security that is actually a loan to the government on which you receive interest
- The interest accrues every 6 months but generally the holders let it compound until they redeem the bond.\\


Question: What is the importance of the APY?
Understanding the impact of compounding frequency on the actual or effective rate of return is essential to Personal Finance
- There are many different investment options available at different Institutions that make it hard to determine which is the best one for you
- By converting the APRs into APYs it allows you to make the best choice to maximize your returns.

Question: Name the three Cs of choosing a financial institution

- cost 
- convenience 
- consideration

Question: List three cash management resources that are used to electronically transfer money.
an automated teller machine (ATM) or cash machine provides cash instantly and can be accessed through a credit or debit card.
A debit card is something of a cross between a credit card and a checking account
- It's like a credit card in that it's a plastic card you can use instead of cash, but it works more like a checking account.
Smart cards, sometimes called memory cards or electronic wallets, are a variation of debit cards
- Instead of withdrawing funds from a designated account with a bank, you withdraw funds from an account that's magnetically stored on the smart card.