What Do You Know about Cash Management?

            Families, communities, and nations are stronger when parents understand correct principles of cash management and teach them to their children. Most people are not born with this understanding, so we need to learn it from someone, and parents are most qualified to do the teaching.

            E. Jeffrey Hill and Bryn L. Sudweeks taught cash management in their textbook titled Fundamentals of Family Finance – Living Joyfully within Your Means. They defined cash management as “how to effectively manage your family’s monetary assets.” They defined monetary assets as “Financial resources that are legal tender (cash) or can be converted to legal tender very quickly.” The quotes in this post will come from their book in chapter 3.

Monetary assets include things like the money in your wallet, in your checking and saving accounts, your certificates of deposit, and money market accounts. All of these items consist of cash or something that can be converted to cash quickly. Vehicles, houses, and other property can be converted to cash, but they do not have as much liquidity. Liquidity means “the immediate accessibility of money.”

Hill and Sudweeks listed an emergency fund as “the most important role of cash management.” In case you do not know what an emergency fund is, it is “Liquid financial resources to meet unexpected and immediate needs.” The authors suggested that you should have enough money in your emergency fund to cover your living expenses for three to six months. Such a fund would be helpful if you lost your job unexpectedly, or your car broke down.

Managing our cash is an important part of effective money management. It is also a skill that can be taught to the rising generation or to adults. In either case, learning and teaching effective cash management can strengthen families, communities, and nations.