So What’s Better: Operating Capital or Paying Off Your Credit Card at the End of Each Month?
I haven’t read much about how people manage their daily cash flow, and it’s hit me that this topic needs much deeper analysis. MUCH! Here’s what I am talking about: I know where most people fall in the large liquid savings account (or emergency fund) that sits around doing not too much discussion, some people like the safety net feeling and others abhor the idea of money that’s just sitting around and not working for you. But besides that, what do you do with your money each month? Because I am a newly minted member of the responsibility club and I am not used to having any “extra” money, I haven’t decided yet what is the best way to handle paying all of the normal but not monthly expenses of life. Option 1 is to continue as I have been doing, which is:
- Paying/budgeting for all of my regular bills in cash
- Throwing the rest towards debt (eventually that will get thrown at building assets)
- When expenses come up outside of that, pay them on my credit card until the statement comes, and
- Pay the bill in full.
I have a credit card and I am not paying any interest, which is cool, but there is also more potential for error and I might overspend and not be able to pay the bill in 30 days. So Option 2 is to create an operating capital fund (AKA my checking account):
- Before moving all extra money towards debt again, build up $1,500 to $2,000 in the operating capital fund
- This money is not for rent, bills, food and gas that have already been budgeted for, but other expenses that come up like that 6-month car insurance premium, registration fees, tuition for a class or training, or even a small vacation.
- When I take money out of my operating capital, put it back in within a month.
Companies need operating capital for day-to-day expenses like payroll, reimbursements, maintenance. We have the same kind of stuff as individuals, and it seems like a good way to manage your regular affairs without getting stressed out about the $129 you need to charge to your credit card for a new Macbook battery. All of a sudden, the battery seems frivolous because it wasn’t in your budget, even though you use your computer every freaking day.
It seems like a basic idea, but this is brand new to me. I am not used to having any money that is not accounted for, and the most I will leave in my account for “whatever spending” is $100 to $200. Operating capital of $200 is pretty low though, even for me.
So tell me: do you immediately allocate every dollar when you receive it or do you have a little operating capital to keep you in the black each month?