Banking and Budgeting

To graduate high school, you should take a personal finance class. If you were anything like me, you spend the entire time just going through the motions and forgetting everything afterwards. If you have yet to take your personal finance class, please learn from my mistake and pay attention.

If you already have, that is okay. This is a quick overview of banking and budgeting. I tried explaining the banking system to a 8 year old once, and he told me it was crazy we all put our money in the same place. To him it seemed like bait for thieves and criminals. However, banks are helpful.

Most banks have something called bank insurance, so if they do get robbed they will still be able to provide all that money back to their customers. Some banks even do personal loans and credit accounts, with good incentives. Plus they do invest in some high tech security systems.

Putting your money into a bank account allows you to make purchases using a debit card. Debit cards are these pieces of plastic that look like credit cards but they are hooked up to your actual money, so there is no borrowing. Having a bank account also allows you to keep a closer eye on your income and spending. In the age of the internet, every bank has an online account site where you can see everything.

So go open a bank account. When you do, keep an eye on what are called overdraft fees, account fees, and ATM fees.

An overdraft fee is an amount the bank will charge you if you use up all the money in your account and then spend more. This makes sense but sometimes you get surprised by a large purchase and don’t realize you are going over your bank account’s full amount. So try picking a bank that has a kind overdraft fee or even a notification system that lets you know when your account goes below a certain amount.

Banks also sometimes charge various other things and label them account fees. My bank charges $5 a month for paper bank statements. I tried unsubscribing for about 2 years before they understood that I didn’t need a paper statement each month. Sometimes the fees are for maintenance or some other miscellaneous reason. Be sure to ask if there are any fees that a bank charges before you open an account.

Many of us remember ATMs, those money vending machines that were always outside in a parking lot or in the outer wall of a bank. An ATM fee is when your bank charges you extra for using an ATM. Some banks only do this if you use ATMs that they don’t own. Other banks just charge a monthly amount.

Now normally you have 2 options for a bank account. Checkings is when you put all your money in the account and use it as you go. This is the account your income goes into and your purchases come out of.

The other basic account kind is a Savings account. Savings accounts are not to be used for every day purchases. Savings accounts will have an interest rate, meaning the longer your money sits there, the more money you will have. You are earning money by leaving it there. You are going to want to open a savings account as your emergency fund. I started mine when I had $200 that I was not going to use.

Budgeting gurus and financial advisors are going to recommend you put 20% of every paycheck into that savings account. If you can, it is a good idea. Because like I said, that is your emergency fund for sudden car repairs or doctors bills.

I know not all of us can immediately start saving, and that is okay. I think if you start simple, do something manageable, you can still build up your savings account. I have seen people who forgo a coffee every week and put that amount in their savings account. Some banks allow you to ‘round up’ every purchase, making the amount even and the extra cents go to your savings account. I am terribly bad at remembering to put my money into my savings account so it is really great that I can automate the transfer of money from checking to savings.

More complex accounts your bank might offer are called CD’s. A CD is like a savings account but with a higher interest rate and a lock on it. When you put your money into a CD, you are not allowed to use that money until a determined time frame is up. Some CD’s are for 6 months, others can be for 10 years. The longer the period, the higher the interest rate. Banks offer these because they are using your money to offer people loans. So when you get it back, you profit a little.

No matter where you keep your money, it is a good idea to get into the habit of tracking it. I started out with a basic spreadsheet tracking my income and expenses because I needed to see the breakdown of it all.

However, the modern banking system has connected with the internet! Oh how marvelous for all of us math haters (me, it is me). This means if you have a bank account, you can sign on to their website and see every penny that entered and left your account. They even make it into charts and graphs if you don’t want to look through the total line by line.

Another key to budgeting is the ‘wait for it’ rule. (Imagine the Hamilton cast whispering ‘wait for it wait for it wait for it’ behind you) This means unless it is food, hygiene, or medicine, do not make any sudden purchases. You have to wait for it. You want that cute new dress? Or those slick new slacks? Me too, but I refuse to buy them until I have wanted them for a few weeks.

This way, I always buy things I know I want or need. Figurines, books, clothes, even blankets or makeup all fall into the ‘wait for it’ category. It is important we still allow some joy. Don’t forget to buy yourself some frivolous and fun things every once and a while. I have a system where I get to make a fun impulse buy every 25 days (if I was productive, sick or rest days don’t count).

I have friends who say I am rewarding myself the way parents reward 5 year olds. I don’t particularly care since it means every 25 days I get a new book or unicorno figurine.

Find out what works for you, everyone can balance between saving and allowing yourself some joy. I encourage everyone to read at least a little of the book Common Sense Economics, it breaks down value and cost in a much better way than I can. But if you don’t feel like reading a book about the psychology of spending, I get it.

Just be smart and pay attention to your money. Even if you don’t have a lot of money, you can still budget how it is spent.