Bad with cash? Read this


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Cash management is a term often used by businesses to determine how much revenue coming in is available for day-to-day operations, and how much is available for investing in the future of the business.

But cash management is important for individuals, too. Your own personal balance sheet is not unlike that of a business. You want to determine how much of your income is available for covering expenses, discretionary spending, and investing for your future.

When you take control of your spending and saving in proportion to your income, you’re engaging in cash management. Here, we’ll explain the process in more depth, highlight the benefits you’ll reap, and guide you through this process, step by step.

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What Is Cash Management?

You may wonder about the meaning of cash management; it can sound like a complicated term. But here’s the simple truth: Cash management is all about managing the money that’s coming in and the money that goes out in the best way possible for your day-to-day living. You can also think of it as cash planning, as it helps you stay in good financial shape today and tomorrow.

Let’s look at this through a somewhat different lens: Solid money management strategies like the ones we’ll explore help you maintain healthy cash balances, stay on budget, earn a return on your savings, and reduce expensive debt.

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Why Is Cash Management Important?

Good cash management is essential for a business’s financial stability. By the same token, borrowing cash management techniques that businesses use can help individuals enhance their overall financial wellness.

The concept of cash management is straightforward, but implementing it can become a bit more complex as individuals deal with financial ups and downs. These five strategies can help you adopt an efficient cash management process worthy of any corporate Chief Financial Officer.

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1. Create a Realistic Budget

Think of your budget like a personal cash flow statement, which is a financial statement businesses often use to monitor income and expenses each month. Your personal budget can work the same way, becoming your personal cash flow statement.

If you’re often wondering at the end of the month where all your money went, that’s likely a sign it’s time to create a realistic budget. This can give you a clear picture of your monthly cash flow (money you earn) and your monthly cash outflow (money you spend).

From there, you can take the necessary steps to manage your cash flow to help you avoid too much debt, set financial goals, and save for the future. Once you accomplish that, you’ll be enjoying a good example of cash management. And it’s easier than you might think! Creating a budget isn’t difficult. You’ll simply need to gather some of your financial information and do some calculating.

Let’s explore what financial info you’ll need below.

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Income includes your salary, bonuses, self-employed income, rental income, and all investment income including interest, dividends, and returns.

For the purposes of cash flow budgeting, you want to work with after-tax income, or the money that’s actually available to you instead of pretax gross numbers. So, this means take-home pay, not your gross salary.

Any extra money — such as bonuses, tax returns, or money from side gigs — should be factored in, as they are earned and with taxes owed in mind.

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Essential expenses should include things like the following:

  • Housing and utilities
  • Food
  • Childcare
  • Medical expenses
  • Insurance premiums
  • Car payments and maintenance
  • Public transportation costs
  • Clothing

Expenses can also include discretionary spending. This includes the things you want but don’t necessarily need, such as entertainment, travel, and other non-essential items.

Then there’s debt. Do you have student loans, credit card debt, or any other debt? If so, this is the liability side of your cash flow statement. You’ll need to take a close look at that.

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2. Accurately Estimate Costs

Just like a business, the more accurate your budget is, the more efficient your finances will be.

This is where tracking expenses comes in. You may find it makes sense to track your expenses for one to three months so you can determine exactly where your money is going. You can do this using your own spreadsheet or budgeting apps such as SoFi Relay.

Here are a few common living expenses that can help you create your own list. Once you have a finalized list, you can then use it to determine how much you’re spending on living expenses.


  • Rent
  • Mortgage
  • Utilities
  • Maintenance
  • Insurance


  • Car payments
  • Maintenance
  • Gas and tolls
  • Parking
  • Public transportation costs
  • Taxis and ride shares
  • Auto insurance


  • Day care
  • After-school programs
  • Summer camp
  • Tuition
  • Babysitting
  • College tuition


  • Health insurance premiums (if not deducted from your paycheck)
  • Auto and home insurance premiums
  • Life insurance premiums
  • Disability income insurance premiums


  • Groceries
  • Takeout and restaurants


  • Deductibles, copays, and coinsurance
  • Prescription drug costs
  • Over-the-counter (OTC) drugs
  • Eyeglasses and contacts


  • Concert, theater, and movie tickets
  • Paid streaming and podcast services
  • Books
  • Travel


  • Food
  • Flea and tick prevention/other medications
  • Vet bills
  • Pet insurance


  • Clothing/shoes/accessories
  • Haircare and other grooming
  • Toiletries/cosmetics
  • Gym membership

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3. Be Mindful of Cash Flow

You can use your income and spending data to better manage your cash flow. One approach to consider: Separating your income into different “buckets” using a percentage system.

With the 70-20-10 rule, you aim to put 70% of your income into essential and discretionary spending, 20% toward savings or paying off debt, and 10% toward investing and charitable giving.

These “buckets” can help you prioritize and achieve your financial goals. If your spending exceeds 70% of your income, you can find ways to reduce discretionary spending. How, exactly? Cutting back on takeout and restaurant meals, streaming services, and clothing purchases can all add up to more savings.

You may also find you need to make more drastic cost-cutting moves, such as finding less expensive housing or transportation. This can be especially important if you are paying off debt. If you are carrying heavy student loans and/or credit card debt, you may find you need to devote even more than 20% of your income to paying that down so you can avoid the high-interest payments and make way for other savings. This could include an emergency fund or health savings account (HSA).

The 10% investing allocation is where you focus on long-term financial goals, such as saving for retirement or future education expenses. It also offers a place to give back with charitable contributions.

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4. Invest Extra Cash

Successful companies invest extra cash back into the business so it can grow. The same notion works for personal finances. Where you invest your extra cash that’s destined for short- and long-term savings is an important aspect of cash management.

For short-term savings, high-yield savings accounts, money market funds, certificates of deposit (CDs), and cash management accounts may all pay more interest than a traditional savings account.

Funds earmarked for long-term savings are usually best made as contributions to the following kinds of accounts:

  • IRAs
  • 401(k)s
  • 403(b)s
  • Self-employed retirement savings plans
  • Other long-term tax-advantaged accounts

This isn’t money you need soon, so it can be invested more aggressively than your short-term savings.

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5. Avoid Bookkeeping Inaccuracies

With any cash management or budgeting process, being fluid and staying on top of your finances is key. There are times when you may need to allocate more toward debt payment and other expenditures, as well as times when you can focus on saving.

Regularly tracking expenses and adjusting your buckets accordingly will help ensure no inaccuracies creep in and keep you on track for your financial goals.

Also, regularly checking your account balances and reviewing statements (online, in an app, or on a hard copy) is vital too. Accurate bookkeeping enables you to stay on top of cash management while balancing short-term needs with long-term financial planning.

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The Takeaway


As you’ve seen from these examples of cash management, it’s a process that need not be complicated. By adopting these cash management concepts, you’ll be able to manage your cash flow, create a budget, and stay on top of your finances. What’s more, they’ll also guide you towards meeting your long-term goals as well by helping you manage debt and save for tomorrow.

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This article originally appeared on and was syndicated by

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