PayDay! Banking and Savings
Why Should I Care?
You've worked hard and now it's here - your first paycheck! It's directly deposited into your checking account - now what? How do we get it out? How do you use a checking account? How much should I save for the future? What are the other accounts at the bank? What are all these rules about checking and ATM cards???
Take the Quiz!
Checking - A bank account used for daily transactions and money you need in the near future. Some checking accounts pay interest.
Savings account - Money deposited in a bank that you can use whenever you want, pays a small amount of interest
Money Market- Similar to savings account above, BUT you can not make as many monthly transactions. Higher interest than a savings account but sometimes higher minimum account balance.
CDs - Certificates of Deposit. Savings accounts that pay a higher interest rate in exchange for you committing to leaving them for a set amount of time ranging from 3 months to 5 years. Penalty if you withdraw before the maturity date.
Debit/ATM Card - Plastic card that allows you to access your bank and savings accounts electronically or at an ATM. The card has its own number that can also be used to set up mobile access
Bank/Cashiers Check - A check issued by a bank that can't bounce.
Money Order - A check issued by stores, post offices and Western Union. Made out to no one and is similar to cash until the name is filled in
Endorse- Signing the back of a check you received to make sure you are the person depositing the check
Overdraft - Having a check or electronic payment hit your checking account for more money than is in your account causing it to have a negative balance
PIN - Personal Identification Number - Your electronic signature consisting of 4-8 numbers or letters
Short Term Investing - Money in bank accounts or other safer or lower risk vehicles that come due in less than 3 years
Long Term Investing - Money invested in riskier investments that you don't need for at least 3 years or more. Typically these would be stocks, long term bonds, mutual funds, and ETFs
Learn the Lingo!
Making your Money work, too!
You're working hard for your money! Why shouldn't your money work hard for you, too? Just like eating a balanced diet is healthy for you, having a balanced approach to where and how you save your money is also the best strategy for what to do with your hard earned cash!
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Money that is needed in the near future should be invested in safe, liquid (easily accessible) accounts that don't grow mcuh, but don't lose money either.
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Money you need in a few years for a car, college or other long term goals, can be invested in riskier investments that over the long term make more money. In the short term though, the account can be down and lose money, so you don't want to invest money you need in less than 3 years into longer term investments.
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This Life Lesson is going to discuss bank accounts including savings and checking accounts and the practical rules you need to know. This is the foundation of your savings plan. In later Life Lessons (8,9 and 10) we will discuss the longer term investments of stocks, bonds and mutual funds.
Keeping Track of your Checking - Very important!
Below is a copy of an old-fashioned paper check register. While the method is old, the need to track the activity in your account is critical. Having insufficient funds in your account can cause checks to bounce and autopay can fail (money taken from your account automatically electronically). Every time a check bounces or an autopay is rejected both you and the person who received the bounced check can incur fees up to $35 each! And the person you bounced the check on will want you to pay their $35 bucks penalty! It's smarter to keep track of not just what's in your account today, but also what's happening tomorrow.
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Here are some examples of items to keep track of:
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Checks clearing - If you deposit a paper check, it takes a few days for your bank to "clear" it or give you full access to all the money. Don't spend it till it's clear!
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Autopays or deductions - Many subscription services like Netflix, music services or, gym memberships get deducted from your checking automatically.
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Autopay for Loans and Credit cards - As you will see in Life Lesson 10, the best way to protect your Credit Score is to have all your loans on autopay so you never have a late payment. Of course you must make sure the money to pay the balance of the card or loan payment is in the account by the payment due date.
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Paper check you have given someone. Just because you handed someone the check, doesn't mean they cash it right away.
There's an app for that!
These apps connect your banking and track your balances and your spending. Check out this Forbes article on the
Mint
Albert
Personal Capital
YNAB
Clarity
Money
Whatever method you use, make
sure you keep track!
You can keep track on a spreadsheet or use a check register online or on your phone. To keep track properly, After you have entered your starting balance, enter your deposits (including any interest) and subtract any checks you write, payments you send, AND any autopays that you expect to hit that month (i.e. Netflix, Spotify). That number is your available balance, meaning it's available to spend. Your actual balance might be higher because it still has the money set aside for items that haven't hit yet like your music or tv subscription or a check that you gave someone but they haven't cashed yet. In the register below, note the column with the checkmark. That is for people to make a note when a transaction has cleared or come out of the account.
​Did you know?
Bouncing too many checks can hurt your credit score even though its not a loan! Make sure you keep track of your bank balances and what checks and autopays are outstanding! Even if it's not a "check". Any kind of insufficient fund activity can end up causing a charge against your account. If you do this too often, the bank can close your account, plus they can charge up to $35 each time!
BELOW IS A PAPER CHECK REGISTER BUT YOU CAN USE A SPREADSHEET EXACTLY THE SAME WAY TO KEEP TRACK OF YOUR ACCOUNT. THE IMPORTANT THING IS TO KEEP TRACK!
Venmo and Cash Apps
Venmo and other cash apps are becoming very prevalent in everyday life. There are, however, many precautions that must be taken to protect yourself from hackers and phishing on these apps. It is important to keep transactions and contacts on private in Venmo to keep personal information hidden. It is also smart to keep your bank account and cash apps separate, so if the app gets hacked, there is not a direct pathway to your bank account. Other cash apps are Zelle, PayPal, Cash App. On all apps, make sure to double check who you send money to! If you make a mistake (or if someone steals your friends profile pic and you don't notice), YOU WILL NOT GET THE MONEY BACK!
