How To Make Money Float – A float, in the traditional sense, basically means banks double-counting deposits for a short period of time while transactions are being completed.
Think of it as you writing me a check for $1,000,000. (It was definitely for you. Thank you so much!)
How To Make Money Float
Well, for a while, your bank account shows your one million, and mine shows the same million. During that time every bank tries to earn interest on that deposit. They are both floating cash that they may not have at one point or another and try to earn interest on the float.
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My use of the funds is similar, but unfortunately on a much smaller scale now anyway. I call this earnings the float, because I’m earning in the interim while the funds are due and I probably want to feel good. This idea can be closely related to carry trade or arbitrage. Consider this essentially Funding 101.
Although many people fear credit card debt, you should know that it can be a useful tool. The idea is to use cheap, or free, money as a fund to earn a risk-free return. I try to think like a bank or an insurance company as much as possible. After all they are the ones with all the money; They must be doing something right. I’ve also used this strategy to take more risk, but let’s keep it simple and relatively safe for now.
What do I do, get a 0% credit card. ← Here is the one I used. Set terms for 0% duration. Is it 12, 15, 18 or the holy grail 24 months? This term is important for two reasons. First, I need to know when I want to pay off this loan. I want to make sure I never pay credit card interest, ever! Secondly, the length of the 0% term determines which product I can invest in.
I apply and get approved for my 15th month 0% card. Sweet! The bank has graciously granted me a $10,000 line of credit. Depending on the company, some cards will offer points, which can be redeemed for cash if one spends, for example, $500 in the first 3 months. Offers like these are not necessary to do this, but are icing on the cake. All my cakes must have icing…
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Here comes the hard part. I use my new credit card for all my expenses: groceries, gas, entertainment, and rent, unless I’m charged extra.
What this does is it frees up cash that I would normally have spent on this item. Let’s say three months later I have $5000 on a credit card and now have $5000 in my bank account. I consider 5k already spent in my bank; Hence earnings float. This is the accounts payable balance sheet in my head.
Now that the card is 0% for 15 months I have a few options. Again, for simplicity, let’s say I decide to choose between a high-interest online savings account like Discover , Capital One , or Synchrony . Or a 12 month CD with my current bank.
A high yield savings account will give me the most liquidity, but CDs will typically pay higher rates. The problem with CDs is that your money is locked up for a certain period of time. You usually can’t access funds early unless you pay a fee. If it matures before the 0% term, and I’m sure I’ll get the funds back in time, I might go with a CD.
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While I carry a balance on a credit card, I only make the minimum monthly payment. At maturity of the 0% offer, I pay the remaining balance in full.
Now you might be saying, “Gee, that’s a lot of work for $305”, or “$305 isn’t worth my time”. The way I see it, I’m making money doing something I’m doing anyway, buying everyday things. Was it really that much work??? I could buy 305 $1 slices of NYC pizza with that money. That’s like lunch for a year for this frugal man!
The main idea is that there are many ways to stretch your dollar and earn a little without changing your habits. Credit cards are a very useful tool if you know how to use them properly.
You need to have self-control to do this strategy. If you do, there’s no reason to fear credit cards or smart loans. If you don’t, ixnay on credit cards. Try another strategy instead.
The Basics Of Outstanding Shares And The Float
Applying for a credit card and taking out a loan will lower your credit score and your credit report will be investigated for two years. You need to be okay with this to do this strategy. I am, because I believe that credit should be used when it makes sense. I wouldn’t use this strategy if I were making a large purchase like a house in the near future.
Please note, interest rates are constantly fluctuating. The rates used in this example may be higher or lower as you read this.
This is not financial advice in any capacity, as none of the contributors to this blog at EMK are licensed financial advisors, attorneys or certified public accountants, and no part of the blog content should be construed as financial, legal or accounting advice. Please consult a licensed professional before making any financial decisions.
Jerry is committed to achieving his version of financial freedom through passive income, side gigs, investments and tax optimization. When he’s not analyzing markets and policies, you can find him mountain biking, reading, building something, or helping someone. He started blogging to help educate and connect with others looking to improve their quality of life. Credit card, debit or mobile pay is common in many industries, although some people prefer to pay in cash. Having a cash float, which is the money you have on hand at the register to give change when customers pay in cash, is an important business process. If you have too little float, you may end up liquidating certain denominations and face angry customers. If you have a lot of float, you may need to cut cash in the middle of the day to discourage theft.
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Determine how much float you need at the cash register by looking at your total sales. Separate your cash sales from all other payment types. You will only offer cash change when someone pays you cash, so for this purpose, you can ignore all credit, debit or mobile pay sales.
Review the percentage of your sales made in cash. You may want to average over a few days so you have a more accurate account of how many of your customers prefer to pay in cash. For example, if only 5% of your customers pay in cash, you know your cash float will be lower than if 50% paid in cash. In most businesses, having a cash float of $150 to $200 is the norm.
Find out what your most common sales total is for cash. Look at your cash receipts and see if you can find some common elements. It can be helpful to make a list of your most common cash items. Don’t forget to consider sales tax if applicable for your area.
Note that you do not need to have enough cash at the start of the day to provide change
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Of your customers. Remember that the cash they use to pay you can also be used by you to replace other customers, especially if they paid with smaller denominations of money. Your up float should have enough cash to offer your customers the percentage change they need. You can determine the percentage by reviewing how many of your customers pay in cash and what common bills and coins they use to pay you.
Once you know the most common cash amounts, you can start figuring out how much change you’re going to have. For a cash float example, if your most common cash flow is $45, the customer will bill you for $50. As a result, you will need several $5 bills to give as change. If your most common tip is $1.50, your customers might give you $2 or $5. As a result, you need to make sure you have plenty of $1 bills and quarters ready to offer your customers change.
Find out which bills and coins you will need and how many coins you will need of each. For a $150 cash float breakdown where your primary cash sales total $4.50, you need to make sure you have as many quarters and $5 bills as your customers.
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