The mail arrives and you open it, as usual. There
before you is your annual invoice for $1,000 that you forgot was coming
due. After all, it has been a year and a lot happens in that time. With other
living expenses, there is not enough money in your account to cover this
forgotten expense. Now what to do?
The above scenario is not that unusual. What is required is
effective money management to eliminate this type of problem. While there are
usually several ways to tackle a problem, the following solution works like a
charm.
Set up a non-registered money market account at your bank.
This particular mutual fund is very low risk. It invests primarily in
government Treasury bills and has a purchase and sale that remains
constant. This fund generates interest that is paid on a monthly basis. The
interest rate is not high, generally 3% to 4% per year, but it is higher than a bank
account. There are usually no fees for this type of arrangement with a bank.
Have your bank move $83 per month ($1,000 divided by
12= $83.33) from your checking account to the money market account each
month. After a year, you will have transferred $996 (12 x $83) plus earned
interest on this money. When the $1,000 invoice arrives, move the money
from the money market account to your checking account and write the check.
Invoice paid. The transfer of the $83.00 per month continues
into the following year to provide for the next annual payment.
The use of the money market account can be for several
contingencies. Some examples include collecting money for annual payments
like various types of insurance, setting money aside for gifts, vacations,
education, an emergency fund, or the purchase of a new vehicle. You can come up
with uses for this type of account from your own personal experiences. This
provides some discipline for handling your money and is wise management of
your resources. By making monthly allocations for all your expenses,
you will quickly learn whether your expenses are exceeding your income and if
you are living beyond your means.
By managing your money with discipline, you will have more
control over your future. This is one part of the larger puzzle of having a
firm grasp of your total financial picture at any point in time.
Setting up a contingency account is just one technique of
handling cash flow and overall cash management. We are all unique in our
personal finances and what might be able to assist us. By examining your
financial picture, some areas where you require assistance may become
apparent.
A representative from Estate and Financial Planning
Ministries is available to work with you. Everything is confidential. There is
no obligation and nothing to buy. Contact us at
efp@CofChrist.org,
or call 1-800-884-7526 (1-877-526-7526 in Canada).
Return to the Estate and Financial Planning Ministries Reading
Room.
