Longwood University 201 High Street Farmville, VA 23901 Personal Finance Bennie Waller wallerbd@longwood.edu 434-395-2046 Longwood University 201 High Street Farmville, VA 23901

Cash/Liquid Asset Management

Cash/Liquid Asset Management Manage your cash and understand why you need liquid assets. Automate your savings. Choose from among the different types of financial institutions that provide cash management services. Compare the various cash management alternatives. Compare rates on the different liquid investment alternatives. Establish and use a checking account. Transfer funds electronically and understand how electronic funds transfers (EFTs) work.

Liquid asset management Managing cash (near cash) assets involves liquidity choices. Liquidity is the ability of assets to be easily converted to cash Holding cash as an asset provides a larger degree of liquidity, however little to no return. Conversely holding long-term assets such as stocks or real estate provide larger expected returns but significantly less liquidity. Without liquid funds, you might have to compromise your long- term investments to cover unexpected expenses Pay yourself first (automatic savings). The earlier you start, the faster you will accumulate wealth.

Start saving early

Financial Institutions “Banks” or Deposit-type financial institutions— Financial institutions that provide traditional checking and savings accounts Commercial banks, credit unions, savings banks, etc Credit unions – established by organizations and open only to members of that organization. Services are similar to commercial banks but often offer more competitive rates.

Deposit-Type Financial Institutions

Non-deposit financial institutions Non-deposit-type financial institutions have more recently begun to offer similar services as banks, while banks have begun to offer services traditionally provided by non-deposit institutions (e.g., securities purchases). Thus, over the past two decades, traditional lines between the two types of financial institutions have blurred considerably. Mutual funds – Stock brokerage firm – Insurance companies –

Non-deposit financial institutions

Choosing a financial institution Consider these issues; Cost – fees, rates, minimum balances Convenience – locations, ATMs Consideration – importance of personal attention Safety - FDIC Balancing your checking account: Keep track of every transaction Compare monthly statement with register, then reconcile register balance with bank balance.

Online Banking Access to your accounts to: check balances, transfer funds, and pay bills. view your financial information 24/7 Via the internet, a mobile phone, or other electronic device. Allows you to choose an internet-only bank. Allows for more efficient record keeping (Mint/Quicken)

Online Banking

Electronic Funds Transfers (EFT) Any financial transaction that takes place electronically. Advantages: Transactions take place immediately. Don’t have to carry cash or write a check. Pay all kinds of bills Examples: ATM transactions Debit card transactions Smart cards Stored Value Cards Apple Pay

Cash management alternatives Savings Accounts – are very liquid, safe and earn some interest. However, most require minimum holding periods, have minimum balances and pay a very low rate. CDs – very liquid and safe, however have penalties for early withdrawal and have minimum deposit amounts. MMMF – investors get interest on a pool of investments minus an administrative fee. This option does offer potential for higher interest rates, check writing and limited risks. There is a minimum investment and not federally insured. Savings Bonds – U.S. Savings Bonds – Series EE and I bonds are safe, low risk savings options issued by US Treasury with low investment options. Tax-free with no fees; low liquidity long maturities with semi-annual compounding. NOW accounts – pays interest but requires a minimum. MMDA – provides variables rate that fluctuates with market, check and ATM privileges. This is a safe alternative but does requires large minimum balances

Cash management alternatives

Checking Accounts Choosing a financial institution, consider: Cost Convenience Consideration Safety Balancing your checking account: Keep track of every transaction Compare monthly statement with register, then reconcile register balance with bank balance.

Balancing Your Checking Account

Other Types of Checks Cashier’s Check Certified Check Money Order Traveler’s Checks

ATMs Provide cash instantly and accessed through a credit or debit card. Convenient but can be costly. Banks charge access fee. Using ATM not owned by your bank can cost $5 per transaction. Attract crime.

Debit cards Allow you access the money in your accounts electronically and limits the need to carry cash. Looks like a credit card but acts like a checking account. That is you must have the money in your account to make transactions. Check card blocking policies. Financial reform Overdraft fees (must opt-in) Over the limit transactions

Stored Value Cards Merchant gift cards and prepaid phone cards are examples of stored value cards. Single purpose or “closed-loop” cards which can be used at only one store. Multi-purpose or “open-loop” cards which can be used just like a credit card and can be reloaded. Many have activation fees, maintenance fees, and ATM transaction fees

What to do when you find a mistake? Banks are run by humans and computers. Both are capable of error. Always keep a record! Avoid human errors such as those involved with deposits at ATMs. Report immediately. Call or write the bank. By law, write within 60 days of receiving your statement.

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