This month in our Finance category, we’re focusing on increasing our knowledge about checking accounts, and making sure we have healthy situations set up for ourselves. If you didn’t take the “How Savvy Are You About Checking and Savings Accounts” quiz last week, now would be a good time to take it.
It’s an eye opening questionnaire that shows how our insecurities about finances cause us to live in a sort of denial. I know I get overwhelmed many times, and it feels like denial or passing it off is easier to deal with than facing my decisions, or figuring out how to solve things. But no more. It’s time to take control of our money so we can live more purposefully, and rid ourselves of self-doubt and insecurity. So let’s get started, shall we?
For clarity, the word Bank used in this post will refer to credit unions, savings and loans, and brokerage firms, as well as traditional banks. All of these places are where money can be kept, but it’s important to ensure they have all the benefits listed below to qualify as your place of banking.
First, let’s talk about some basics, so that we are all on the same page and no one is left confused.
When shopping for a checking account (and you need to shop, or at least make sure your current account has these), make sure it meets Suze Orman’s requirements:
- No monthly fee for simply having an account
- A low required balance to qualify for free checking
- Free checks and free check writing
- Online access to your account and free online bill pay
- Insurance coverage of your deposits
Insurance is a BIG deal when it comes to banking. There was a time when your bank could be robbed, or your banker was just a crook, and you would lose all your hard earned money, and there was nothing you could do about it. Now we have the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (which insures credit unions), or state insurance plans. Any institution that you deposit your money into should be insured by one of these, and they should have that information readily available for you.
Opt for a non-interest-bearing checking account. While it seems like a good idea to earn interest on your checking account money, checking account interest is so much lower than what you could be earning in a savings account, that it doesn’t make much sense. They also usually require you to keep high balances in your interest-bearing-account in order to avoid fees. Which brings me to the next point.
A Checking Account is for cash flow. This means that you use it to pay your bills and fund your monthly spending, and that’s all. It’s not the place you want to save your money. In fact, all other money should be directed elsewhere (we’ll get to where later on in the series).
The problem is that many of us don’t use a budget, so we don’t know how much we need to keep in our checking account to cover our bills and spending. As a whole, we’re not keeping track of what’s coming in and what’s going out, so we just throw everything in there and hope it covers things. Since this is the case, the first step to having a healthy checking account is balancing it.
There are some great programs to help with this sort of thing, like Quicken, but I just use an Excel spreadsheet that I balance weekly, while looking at my online bank statement. When I get a paycheck I put it into my budget, see what bills need to be paid (mortgage, utilities, phone, internet, credit cards), decide what additional money needs to be used (groceries, clothing, car gas, entertainment, etc…), and then take out the cash, or pay the bills online accordingly. Then I feel in control because I’m going into the week with a plan. But, things happen, and at the end of the week, I usually need to make adjustments to the spreadsheet. Sometimes I don’t want to look at the damage, but keeping track forces me to face the truth about what I have and what I’ve spent. Facing the truth is important, because it prevents us from unknowingly driving ourselves into financial trouble.When you face the truth about where you spend, you get your power back. Click To Tweet
So your financial challenges for this week are:
- Check to see that your current checking account meets the above criteria, and shop for a new one if you have to. BankRate.com is a website where you can compare what banks in your area offer. (Remember to update your automatic deposits and withdrawals if you switch accounts by notifying your HR department about direct deposits, and notifying companies you pay automatically.)
- Start keeping track of everything you spend. Knowing where your money goes and how much you have is the first line of defense for healthy finances. You may find that you spend a lot more money on coffee or eating out than you thought, and that if you had been aware, you would have been able to buy the dress you wanted instead. See how controlling your money helps you live purposefully? It all runs in the same vein.
Need help making a spreadsheet to keep track of things? Here’s one in Excel format you can download and tweak for your needs: Checking Account Spreadsheet.
Life comes in and pushes us around, and if we’re not intentional, we can live a whole life in reactionary mode. We don’t realize the TV show is costing us the career of our dreams, or that the coffee habit is costing us the skin care we’d love to have. We just keep walking around in habits and things get away from us. I hate that. Life is waaay too short for that kind of living.
When we evaluate where we want to go, and make a plan to get there, we tell our life (and our money) what it will look like. Doing this immediately places us in control of an area we were previously out of control in, and we are empowered in a whole new way. We are making conscious decisions that matter to us, not just the people selling products, ideas, and lifestyles to us. And believe me, the more I study marketing, the more I see how we are being sold to constantly.
This doesn’t mean you can’t buy the things you like, it means you can buy the things that are important to you, instead of the things that aren’t.
These are just the first steps to becoming financially healthy. We’ll be continuing this weekly series until we cover all the basics (savings accounts, credit cards and FICO scores, retirement investing, must have documents, and insurance to protect your family and home) . Next week’s topic will be about getting financially organized. If you want to make sure you don’t miss a topic, sign up below to receive updates by email.