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Employ basic money management to ride out bumpy economic climate

Article-Employ basic money management to ride out bumpy economic climate

Money: It's part of our lives from the first day our mommy tucks lunch money into our backpacks, until we finally shuffle off this mortal coil. How much of the stuff we manage to earn, how much of it we save, what we do with it — these things will help to determine how successful we will be in today's financially oriented society.

That's why it's so important for you to be well informed on the basics of money management, especially in today’s volatile economy. Here are eight tips to help you become a better manager of the money flowing into and out of your business and personal life:

1. Use all of your money to make money
Open a money market account at your bank and have it linked to your business checking account to allow for telephone or online transfers. Then, deposit all of your daily receipts into the money market account where they will immediately start drawing interest.

NEVER deposit receipts directly into your checking account. 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 profit enhancing technique.

2. Don’t overpay your quarterly estimates just 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 them an interest-free loan at your expense.

The least expensive way for you to pay your tax liability is to try to have estimated payments come out as close as possible to the amount owed.

3. Don’t pay your income taxes by credit card
On the surface, this option may seem attractive to some professionals and business owners.

Here’s the catch: You’ll be charged a “convenience fee” of about 3 percent of the tax liability paid. This is in addition to any interest charged by the credit card company for installment payments.

The bottom line: Don’t do it. Almost any other way to come up with the money you need to pay your taxes will be cheaper.

4. Steer clear 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 business or personal transactions, you must already have the money in your bank account. Debit cards give you no grace period for paying your bill. The money is deducted from your account immediately each time you use it.

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

If you pay off your credit card balances in full each month, the last thing you need is a debit card. You’re now enjoying up to 30 days of free use of someone else’s money. Congratulate yourself on your financial acumen and hang on to those credit cards.

5. Beware of consolidating credit card debt
Is consolidation a magic cure for credit card debt? “No,” says Chris Viale, CEO of Cambridge Credit Corp., a nonprofit credit-counseling agency. “Once you allow yourself to fall into unmanageable debt, there’s no easy way out. Debt consolidation may sound like an easy cure, but many consumers and business owners find that this choice only leads them down the road to an even more burdensome debt load.”

Overspending almost always involves emotional and psychological issues that aren’t going to go away by treating the symptoms. You can find further information on debt counseling at the website of the National Federation for Consumer Counseling:

6. Consider leasing
The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investments, including vehicles.

Talk to your tax adviser about this the next time you’re considering any purchase of capital equipment that might be available on a lease basis.

For more information on leasing, visit:

7. Don’t be in a big hurry to pay your bills
Ever notice how checks are slow to come in from people who owe you money? That’s because hanging on to cash as long as possible keeps that money available to draw interest or to work in the business.

Take the time to set up a system that provides for paying bills only when they’re due. Don't go overboard and jeopardize your credit standing by paying bills late. Pay your bills just before they’re due — not before, not after.

8. Don't be afraid of credit
With today’s extraordinarily low interest rates, careful use of credit can be one of your most effective business-building tools.

It makes more sense to spread the cost of capital purchases out over time than to put stress on your cash flow by laying out large amounts of cash that you could put to productive business use. In addition, the costs of borrowing are legitimate tax deductions for businesses.

Credit, when used in a sensible manner, can be a powerful profit enhancer. Once you make use of business credit, though, it is essential that you protect your credit reputation by keeping a spotless credit history.

For many people, how much money we earn is viewed as the yardstick by which we measure financial success. For those in the know, however, earnings are only one-half of the money equation. Equally important is the manner in which we manage those earnings. Making the right money decisions is an essential ingredient in the recipe for long-term financial security.

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