An important principle at the heart of successful financial management is “don’t spend more cash than you have on hand.”
Cash flow is important. Run out of cash and bad things can happen… banks charge overdraft fees / businesses charge late fees & interest / Uncle Vinny busts your knee caps…
Why then did I overdraw our bank account this month? On purpose. Twice.
Over the past couple years or so we’ve had a zero / non-existent “emergency fund.” Between blog income and dividends I manage our cash flow well enough, but on a regular basis we have close to zero cash on hand.
Because I track every penny we spend, we live well for less, and our credit cards give us free 0% interest loans every month, I haven’t seen the point in keeping a big cash reserve around “just in case.”
Emergencies do happen though. In our case it was an eye infection for my better half. Our first day in Japan was spent hunting down an English speaking eye doctor, who prescribed both antibacterial and antiviral eye drops. Total cost for 3 visits to the eye doctor plus prescriptions was about $120, cash only. (Will seek reimbursement by our travel insurance.) The eye patch was included.
Cash Flow Challenges
Normally a $120 surprise expense is NBD. But we had a few things working against us this month…
- credit card bills were massive –
- End of Q3 – already spent all of Q2 dividends, haven’t yet received Q3 dividends
- Japan has a big cash economy / many restaurants are cash only
Net net we were going to be short on cash until blog income and Q3 dividends arrived at the end of the month.
I considered our options…
- don’t pay credit card balance in full / pay short term 18% interest
- sell some stock to refill cash buffer – $4.95 fee plus a few pennies, plus another potential $4.95 to repurchase later
- also a taxable event (I’m not ready to cap gain harvest until December.)
- beg / borrow / steal
But in the end I took the easy / lazy way out and just did… nothing
Apparently Americans paid $15 billion in overdraft fees last year. With typical overdraft fees of $35, making this choice probably seems pretty dumb.
Fortunately this only cost us $0.13
As part of our normal money management, all of our cash eventually ends up on our Brokerage account at Fidelity. (We also have a savings account that earns higher interest.) Dividends are deposited directly as cash, and I transfer business income to this account before bills are due. ATM withdrawals and credit card billpay are all from the brokerage account.
Using our brokerage account like this is great because all ATM fees are reimbursed, it has a low currency conversion cost for foreign ATM withdrawals, and Fidelity will lend us a seemingly infinite amount of money on margin. The current rate for low levels is 8.575%. Some people use margin to buy more stock than they can afford, but it also works great for short term cash flow assistance.
With a negative balance of -$30.45 for a day, and then a week later a negative balance of -$181.03 over a weekend, total cost was quite reasonable.
All Is Well That Ends Well
As of today, all credit cards have been paid in full and dividend and blog income deposits occurred on schedule. Cash reserves are topped up, and the remainder of this year will be much lower cost than our most recent tour of Europe / US / Japan.
Crisis averted. Knee caps intact. Would do again.