Cash is the sharp end of your monetary affairs.

In this chapter, six things that really matter:

• ˜ Accumulating an emergency fund
• ˜ Managing borrowing
• ˜ Controlling debt
• ˜ Reducing your mortgage
• ˜ Running your bank accounts
• ˜ Managing your credit cards

Cash comes and goes so quickly that it is vital to get it under control and also to make sure that it is always working for you, earning interest whilst in your hands.

Compare interest rates available by finding out the AER – annual equivalent rate. (In the case of borrowed money, it is called the APR – annual percentage rate – but is effectively the same.) These comparable rates allow for the timing of receipts/payments, whether of interest or capital.

In this way you are recognising the time value of money, which simply means that cash in hand today has more value to you than if you have to wait for it.

Is this you?

• Whenever I need extra money I have to take up a bank overdraft.
• I always owe money on my credit card but the interest doesn’t seem much.
• How can I get more interest on my savings?
• Should I use my bonus to reduce my mortgage?
• My bank is never open when I need it.

Accumulating an emergency fund

Building it up

You should have at least one month’s income in your cash reserve, preferably more. The alternative, only applicable if you are paying off debt or building up your reserve is a borrowing facility – that is, a source of emergency finance from somewhere else. This could be a bank overdraft facility or unused credit card balance.

The trouble with these facilities is that if you use them they are expensive, so you need to build up your emergency fund as soon as possible.

Another potential facility is your immediate family; would your parents, for example, be able and willing to make a temporary loan?

Depositing it safely

Use a bank or building society deposit account. Instant access is best, even though higher rates of interest are available on notice accounts, because the money might be needed in a hurry.

Higher rates are usually available on higher amounts, so it is worth using the same account for any short-term savings such as for your holiday. Postal and Internet accounts often offer higher rates.

Rates change and it is important to check regularly. Comparisons of rates can be found in newspapers, money magazines and on the Internet.*