Megan Laurie, a 25-year-old nurse, works at a hospital that pays her every 2 weeks by direct deposit into her checking account, which pays no interest and has no minimum balance requirement. She takes home about $1,800 every 2 weeks—or about $3,600 per month. She maintains a checking account balance of around $1,500. Whenever it exceeds that amount, she transfers the excess into her savings account, which currently pays 1.5% annual interest. She currently has a savings account balance of $17,000 and estimates that she transfers about $600 per month from her checking account into her savings account.

Megan pays her bills immediately when she receives them. Her monthly bills average about $1,900, and her monthly cash outlays for food and gas total about $900. An analysis of Megan’s bill payments indicates that on average she pays her bills 8 days early. Most marketable securities are currently yielding about 4.2% annual interest. Megan is interested in learning how she might better manage her cash balances.

If she comes to you and seeks for ways to better manage her cash balance, how could you suggest her? What could be the total amount she can save following your suggestions?

Answer rating: 100% (QA)

STEP 1 For better financial management one need to understand the power of choosing the right investment and the power of compounding A 100 when kept ... View the full answer