Cash management is the understanding and analysis of what you earn, what is deducted (e.g. taxes), what you spend and what you save. It is the foundation of managing your personal finances because, without creating savings opportunities, you are unlikely to have the financial resources to meet your personal goals.
Without a proper cash management plan, you are risking important life goals, such as retiring the when and the way you want. Cash management also balances your liquidity requirements with the ability to secure good returns on your short-term funds.
How you manage cash determines your current net worth. Your net worth is the difference between your total assets and your total liabilities. As a financial tool, it provides:
- An excellent starting point as the baseline for your current financial situation
- A guide to whether your personal goals are realistic and achievable – and the types and amount of activity that will be required to achieve your goals
- A basis for assessing your progress as you implement the recommendations and as your circumstances change
- An understanding of whether you are building wealth – especially when inflation is taken into account.