Cash Flow Control: Ten Easy Tips to Help You Make the Most of Your Money

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Cash flow—how much money is flowing into and out of your life—may be an easy concept to understand, but not everyone is aware of the importance of skillfully managing that cash.

Professional money managers know that generating income is only half the battle. Careful management of available funds is critically important to everyone, regardless of age or income level. Losing control of money can not only breed severe financial headaches, it often proves to be the first step on the road to financial oblivion. Conversely, a sensible cash management system can make the difference between just getting by and solid financial security.

Here are 10 powerful techniques for improving your money management and your financial health right now:

1. Never allow any of your money to lie idle.

Open a money market account at your bank and have it linked to your checking account to allow for telephone or online transfers. From that point on, make all of your deposits into the money market account where they will immediately start drawing interest. “Putting this step to work in your money management system now will pay permanent dividends in your future,” says Rob Vito, adjunct professor of entrepreneurship at Penn State University.

2. Never deposit any of your income directly into your checking account.

The idea is to keep as much of your money as possible drawing interest as soon as you receive it. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks written. “Modern technology has made telephone and online money transfers so quick and easy that you can’t afford to pass up this profitable technique,” says Vito.

3. Never put a dime in a passbook savings account.

Check with any bank and you’ll find that passbook savings interest is less than the inflation rate. So, savings accounts actually lose money when inflation is factored in. Put that money in an account that will pay you a higher rate of interest. You won’t have to look far. Your new money market account will pay you more interest than a savings account and still allow you to withdraw your money on demand.

4. Don’t allow a CD to roll over automatically.

To maximize the growth of your CDs, always call or visit the bank to review current interest rates, including any promotional rates that might be available. Banks often run promotions offering interest rates higher than their regular rates. You can be certain that an automatic renewal won’t get that rate unless you ask. Millions of CD owners take that easy road at renewal time. Banks love customers like that, but those people are making a mistake that you should avoid.

5. Keep a lid on bank charges.

“It’s important to understand the various options open to you for minimizing costly bank charges,” says Connie Brezik, a certified financial planner in Casper, Wyo. “Banks have wide range of fees associated with different types of accounts,” she says. “Sometimes, a simple thing like understanding minimum balance requirements and overdraft fees can be a real money saver.”

Here’s what could happen if you accidentally overdraw your checking account. Let’s say you have $500 in the account and you write three checks in one day. The first for $10, the second for $20 and the third for $520. Some banks process checks in order of size. In such a case, the $520 check would be processed first. That would mean all three checks, not just one, would bounce. Then you’d be hit with three separate bad check charges. Besides an overdrawn account, you’d be out as much as $105 in painful overdraft charges (some banks now charge $35 for each overdrawn check).

Whether you’re paying interest or receiving interest, never be satisfied with the first offer.

Whether you are borrowing or saving,” says Brezik, “you should always shop around before you sign.” Bank deregulation has produced a competitive environment with wildly differing interest rates and bank charges. If you can find a better deal than your bank is offering, take it. There is no reason for you to stick with a bank that isn’t competitive.

6. Don’t overpay your quarterly estimates or increase your tax withholding to avoid owing the IRS money at tax time.

It may feel satisfying to discover that Uncle Sam owes you money at tax time, but don’t be fooled. The IRS gets the last laugh when you overpay your quarterly estimates. “When you do that, you’ve handed Uncle Sam an interest-free loan at your expense,” says Brezik.

"Many people overpay their tax withholding or tax estimates,” says Vito, “thinking of that technique as a form of forced savings. In reality, it’s a sure way to get less than zero interest on your money. The least expensive way for you to pay your tax liability is to have estimated payments come out as close as possible to the amount owed.”

7. Don’t pay income taxes by credit card.

On the surface, paying income taxes by credit card may seem attractive. It will enable you to postpone your payment, even pay in installments to the credit card company. Then there are those perks offered by some credit card issuers.

"It may sound like a good deal, but it isn’t, due to the additional fees charged,” says Brezik. You may be charged a "convenience fee” that can be as much as 3 percent of the tax liability paid. This is in addition to any interest charged by the credit card company for installment payments.

8. Don’t be in a big hurry to pay your bills.

There’s good reason why checks are slow to come in from people who owe you money: Hanging on to cash as long as possible keeps that money drawing interest. Set up a system that provides for paying bills only when they are due. But don’t go overboard and jeopardize your credit standing by paying bills late. Pay your bills when they are due—not before, not after.

9. Beware of debit cards.

Be aware of the unique risks of debit cards, and how they differ from credit cards. When you use a debit card for your transactions, you must already have the money in your checking account. Debit cards give you no grace period for paying your bill; the bank deducts the money from your account immediately, each time you use it.

Unless you’re a fastidious record keeper, keeping your account in balance may be a problem. It’s easy to misplace a receipt and forget to notate the transaction in your check register. That can result in overdrawn accounts and financial penalties.

With credit cards, you may dispute errors or unauthorized charges and withhold payment until the matter is resolved. With a debit card, you have spent the money the moment you complete the transaction.

If you pay off credit card balances in full each month, the last thing you need is a debit card. You’re now enjoying up to 40 days of free use of someone else’s money by taking advantage of the period between the purchase date and when the money is actually withdrawn from your account. In this case, you should congratulate yourself on your financial acumen.

10. Plug those money leaks.

“Skillful money management doesn’t mean cutting out those fun things in your life,” says Sally Herigstad, a certified public accountant in Kent, Wash., and author of Help! I Can’t Pay My Bills. “Instead, I suggest that you look first for those little ‘money leaks’–places where money slips out unnoticed, giving you little or nothing in return.”

Before you give up the first latte, Herigstad suggests you check for such thing as:

Repetitive charges on your credit card for things you no longer need—Internet services you forgot about, trial memberships, gyms or clubs you never go to.

Bank or credit card fees that may have gone unnoticed. How many times have you paid late fees or annual fees for credit cards you could get along without?

Another form of money leak that can put a dent in your wallet or purse is “hidden” fees associated with your investments. If you buy mutual funds, you should pay close attention to management fees. They can range from as little as one-quarter percent to 2 percent or more of the fund’s value. High management fees can seriously erode your overall investment return.

If you’re into the latest communication technology, you probably have regular phone service, wireless phone service and Internet service. Don’t pay two or three different companies for your communications needs. Instead, look into the bundling services offered by most communication companies. Bundling all your communications needs with a single supplier can result in much lower overall costs.

Taken individually, good cash management techniques may seem inconsequential. However, when you blend them together and use them consistently, you’ll become your own skilled money manager and make the most of your money.

William J. Lynott is an author and freelance writer who specializes in business and financial issues.