Managing Cash Flow

I've recently found myself in the unenviable position of running short on cash. The holidays are here, I had to have some maintenance work done on my car and year end property taxes are due. Work has slowed some and my side jobs have dropped off which is normal during winter months. So I found it necessary to review my cash flow management. During the spring and summer, when I had extra cash flowing in from outside work, I got a little sloppy with managing my money. Not that I was squandering it by any means, rather I wasn't as concerned about running low on cash because there was a lot more coming in.

After carefully reviewing my personal balance sheet, I was able to identify a solution to my problem. Since my income from work and from my investment portfolio are more than sufficient to meet my current expenses, it was just a matter of allocation. To build up my cash reserves I simply reduced the amount of monthly stock purchases by 30%. Of this amount 10% will remain in my savings account with my bank and 20% will go into my money market account, where it will earn a higher rate of interest and still be readily available should I have a need for it. For the most part, I should be able to leave the money in the accounts and let it accumulate, building a nice cash reserve while still earning income in the form of interest. I have set all this up on an automatic investment plan through my online brokerage. I will still be adding to my stock account every month. My dividend income will still increase on a monthly basis and I will be in a better position to avoid any future cash crunches. Since I've set this all up on a percentage basis, as my income goes up each month, so too will my stock purchases, thereby generating even more passive income and adding to all three accounts. I really am not too concerned with stock prices, since my investment strategy is to buy dividend paying stock in solid companies with strong profits, low debt and room for growth. As long as their balance sheets remain strong, it's the income that they generate that I'm concerned with.

One of the best tips I've gotten on identifying a bargain dividend stock:

The historical average price that people are willing to pay for $1.00 in dividends is $24. The stock price may go higher or lower, but tends to gravitate towards the mean. So I always look for a stock that is selling below $24 and pays at least $1.00 per share in dividends. Of course I want them to meet the investment criteria I mentioned above and they have to have enough earnings per share to pay the dividends and still retain earnings for growing the business. Sometimes these stocks are a little hard to find, but it's well worth the effort.