Personal cash management policies and practices: a literature review

¶ … personal cash management policies and practices. The paper starts with by stating the methodology through which the content was collected for the relevant literature in the paper. The paper then presents a clear definition of what cash management is and presents an overview of some of the most utilized personal cash management practices. The literature review also presents numerous internal cash management policies and practices that can prove to be feasible and profitable on the personal level. The paper concludes with an overview of all the facts discussed.

Search Strategy

In order to collect relevant data for the results, concise and yet comprehensive information related to the topic have been compiled from articles published online individual researchers, practitioners, as well as, international research institutions. The aim of the study is to critically review the strengths and weaknesses of both conception and implementation of research pertinent to our topic -- Cash Management. This section also aims to present new questions raised by the research and their potential for future enquiry. The keywords used to collect data had been, "personal cash management," "cash management practices," "cash management policies."

As mentioned above, factors affecting personal cash management decision use are several, but only the most relevant ones will be discussed in this thesis so that the relevancy of the argument can be sustained throughout the paper. The text puts forward concepts, theories, fundamentals, principles, strategies and tactics that are utilized by international institutions. This literature review will include only those studies which (1) were confirmed to be of cash management practices, and (2) were confirmed to be of cash management policies.

Evaluation of the data will be based on calculating the intended affect or the outcomes/results of the study. The method used to measure the results of the study will be the same as those found in other research synthesis studies. The writer will also look into the process with which the results are obtained so that limitations in the methods can be determined and improvements can be suggested.

Internal Cash Management Benefits for Personal Financial Planning

Exercising efficient internal controls is vital for all relevant sections of personal and corporate cash management primarily due to the multifaceted temperament of the progression revolved around cash management procedures namely processes like simple bill payments, cash deposit or collection, as well as the disbursement procedures (Michel, 2001). Daily cash management at personal and corporate levels also includes the uneven distribution of tasks at the administrative branch that are normally associated with the completion of the aforementioned processes (Bierman and Macdams, 2001). Some aspects that can ensure efficient cash management procedures at the personal and corporate levels include the following:

a. The frequency of an increased level of turnover ratios of the work staff, functioning managers as well as investors in the cash management departments;

b. The delegation of all cash management strategies and execution to those individuals who have a vast experience in financial breakdowns (Bierman and Macdams, 2001); as well as

c. The segmentation of billing and cash managements tasks that complement the efficiency of the monitoring functions (Michel, 2001)

A majority of the personal cash management transactions in the United States are handled by the Department of Commerce. The primary task of the Department of Commerce is to create and implement efficient cash management policies that will reduce the overall expenditure costs for the working individuals. Furthermore, the most efficient policy of personal cash management that individuals look for is the assurance that their liquid assets will be safe from any form of wastage, loss, illegal exploitation or embezzlement. It is also important to note here that internal controls can seem restrictive when dealing with personal cash management structures but they are extremely necessary as through internal controls, one can very easily employ experienced financial managers who add value and innovation to the entire process and make the individuals feel more confident in their personal financial plans. This further ensures that the individuals will look for customized results and hence take active part in the control of the cash flow at their end as well (Chiumintto, 2001).

On the other hand, it is also important to note here that the overall pros and cons of the specified market or cash situations have to be assessed before and after application of any and all personal financial plans. This has to be done to ensure that the overall benefits outweigh the costs and the application of the strategy is most appropriate for the stations that the individual is facing at the local and communal level. However, care has to be taken that these assessments are not used as tools of excuse to ease up on the overall execution of financial plans and management strategies or overlook possible profits from the execution of a policy if it initially incurs break-even situations for the individual (Gitman et al., 2010). For example, a great education financial plan will most likely reap minimal to no results for the parents who invest money in it for the first five years. This might discourage some parents from investing in the plan but the internal controls should be such that they make these parents see that the profits will come in dividends in the long run and the plan will only benefit them.

The fact of the matter is that internal controls for personal cash management are necessary for all individuals. Most of the most effective personal cash management strategies cannot be implemented without a proper structure of the internal control that employs not just financial managers but also the specific responsibilities being handled by employees who have a specified set of abilities. The important aspect about personal cash management here is the level of communication and two-way guidance that the managers and employees have amongst and between each other as well as with the individuals who invest in personal financial plans. Once the relationship becomes mutually respectful and coordinated, personal cash management tactics like cash deposits or collections, expenditures, and holdings that the company/employee and individuals are personally responsible for become far more coordinated. Hence, personal cash management can be at its best if and when the organizational managers employed in the cash management unit are not only experienced in what they do but have an eye to hire and delegate responsibilities to those individuals who will be able to execute target and sustain the achievement of the personal goals of individuals over the long-term (Gitman et al., 2010).

When talking about intangible strategies that can be employed in personal cash management, the most common aspect is the use of common sense to understand the overall demand ratio as well as the performance and temperament of the products in the market as well as the demands of the individuals buying those products. This will ensure smart investments and hence profitable safeguarding of the personal liquid working capital. Again, these personal financial plans and strategies can be best created and executed in an environment where appropriate internal control policies are in place. This will ensure that the regular use of certain strategies is the safest and most fruitful. The paramount level of personal cash management principles can be attained using the following strategies (Agarwal, 2001):

a) The overall importance of time and its role in the cash flow is recognized as an integral part of all personal financial plans, management strategies and projects.

b) No personal cash transaction will take place until the approval from the delegated authority is not received in a timely manner (Agarwal, 2001).

c) All personal cash transactions and every step of these transactions will be promptly recorded, whether manual or automated, to ensure that there is a constant trail of all transactions that have been made.

d) All personal cash forms will have serial digital signatures and numbers in order to correctly show accountability of all transactions and so that the individuals can have copies of exact transactions recorded at the back end.

e) All of the relevant documents that are used as part and parcel of personal cash transactions will also be given security against any form of illegal or unnecessary use.

f) Regular analysis should be conducted to identify any mistakes or duplicate transactions made by the individuals.

g) Any and all adjustments will only be made after authoritative consent and approval (Bierman and Macdams, 2001).

h) Superfluous accounting procedures and management of personal cash or all relevant personal cash record must be eradicated to decrease the danger of unnecessary financial loss and disclosure to mistakes and duplicities (Agarwal, 2001).

i) All electronic funds transfer as well as the direct cash deposits made will be made applicable to use whenever it is the most feasible and fruitful path of transaction.

j) All software and computer programs will be designed for use till the point that it is highly possible and will be primarily designed to help in the reduction of errors and mistakes in the personal cash transactions (Agarwal, 2001).

Conclusion

In summarizing, the paper aimed to highlight some of the important aspects of executing personal financial plans and cash management strategies. The personal cash management plans need improvement in term of the checks and balances of the cash flow and expenditure in order to improve the balance of payments ratio as well as create innovative financial plan strategies. The paper also highlights that the use of internal control for personal cash management is the best way to go as it focuses on hiring the best managers and employees to design the best possible personal financial plan structure. This ensures that all personal cash transactions will be handled by experienced and motivated individuals who will ensure that all the other strategies and procedures discussed in the paper are handled correctly and in a timely manner.