Just about Money
I've learned a lot about money in the past 4 months. I'm trying to figure it all out... what works, what doesn't work, how to save, how to work the system, etc... Its all very mental, and I know that what works for me won't work for everyone, but I'll go through my system. I'll put my bank on blast. I've had good and bad experiences. I use Bank of America... and my money is managed through online banking. I never use checks because not only do you rarely have to anymore, there is no telling when that money will leave your account.
I have 4 accounts - 2 checking, 2 saving, and a credit card.
I do everyday purchases with checking #1
Direct Deposit goes into checking #2
I pay all bills from checking #2 and give myself spending money when the direct deposit comes in. I pay myself by transferring funds to checking #1. I only carry my debit card for checking #1... so if I feel like spending more than I allocated, its impossible.
Savings #1 is short term savings and is usually empty. When I want some electronics, or something for my car, I throw some money in there until I have enough. It prevents impulse buying which is the ENEMY.
Savings #2 is long term savings. I put money in there whenever I can and the rule is simple... it can't be touched. Emergencies are the only exception, but the credit card is there for that as well.
No one needs 4 accounts, but like I said its all mental. If I had one savings account, I would save and ultimately buy electronics out of that account... then I would feel I could spend that money whenever, as opposed to the simple rule I have for that long term savings account. As for checking... I make sure the bills are paid first, then put money in savings, then pay myself. If there was one big checking pot... its easy to get carried away and before you know it, how are you going to pay the car note?
About credit cards. They are not bad if you know the rules. Luckily my parents made sure I knew the rules. If you don't know, carrying a balance doesn't affect your credit... your credit is defined by how responsible you are with your balance. This means as long as you always pay at least the minimum every month, your credit doesn't suffer, it actually builds. The way this society works, most of the things people have and are able to do is a result of spending money they don't have - that includes buying a car, home, or education. So that's why credit is so important. I am still building mine... but once credit is built, there are some nice things you can do to make it work in your favor.
Now this is a learning experience... so if any readers see any flaws, please let me know. My plan is to pay for as much as possible with my credit card. This is for 2 reasons. First and foremost, credit card money is the bank's money... not yours. Therefore if there are any disputes, its their responsiblility to dispute it, and you can sleep without worry. Granted, there may be a question of you owing the money, but at least there isn't a big hole in your checking account during the dispute. Along with this, I've noticed that some merchants take forever to complete transactions, so my checking account shows one balance tuesday night... I go and spend accordingly, and then $50 worth of purchases go through the next day... in some cases those purchases are 3-4 days old. The lesson learned of course is that you have to pay very close attention to your balance and not rely on the numbers the bank shows, but I'd rather not worry and instead have it all go through the credit card. Besides, I figure if they are the bank, they should have an accurate number for me, and they just don't. Maybe they will if I use their money instead.
The advantage to this, is that YOU pay 1 person per month - your credit card company. And if done responsibly, you'll be paying the full balance on your card every month - which means that you will not incur finance charges. The added advantage to this is that you can get a credit card with rewards such as frequent flyer miles or financial rewards. That way the spending you do anyway can benefit you. I like the idea of only paying 1 person every month, even if it is most of my paycheck. It really doesn't make too much of a difference, but spending the bank's money just seems safer to me.
As far as other lines of credit, well, your credit score takes a hit every time you open a new line of credit. So as tempting as it is to get a Best Buy card and a 10% discount on that day's purchases, my opinon is that if you are going to pay for something on credit anyway, you might as well use the card you already have. The discount they give you is not worth the hit your credit score will take.
Another lesson learned, and something to look out for... years ago I was taking care of NSBE purchases for my chapter with my debit card. This was before we had a system in place with the school. Well, I monitor my account well, but when you have more money in there then you expect, it usually doesn't set off an alarm in your mind. That's what happened to me. I saw more money than I expected, and I didn't know why, but I took that to be my balance, and I spent accordingly. This is what REALLY happened.
I paid upwards of $200 to NSBE for registrations. The money left my account and went into what the bank calls a holding area. The way it works is that NSBE has up to 3 days to claim the money that is set aside for them in the holding area. IF NSBE does not claim the money in that time, the money is put back into your account. NSBE HAS UP TO 1 YEAR TO CLAIM THE MONEY. I'm using NSBE as the example, but this holds true for any merchant. So 3 days later, I see more money in my account. I have no idea why, but I figure its right. I get down to $50 in my account, then NSBE takes all their money. I'm there on the phone with the bank trying to figure out what happened, and that's how I learned how this process works. These are things they do not tell their customers. Believe me, they make a lot of money from those overdraft fees.
Last thing I learned around the same time... hotels and restaurants like to take or "reserve" more money in a transaction then you actually owe them, to account for possible incidentals or tip. This is not the case for credit cards because it is not your money. But paying for a hotel on debit, don't be surprised if a $400 bill removes $450 from your account. That's obviously bad if you only have $425 in the account. You get the money back... but no one is going to reimburse that overdraft fee.
Unfortunately I have a few other stories... but they all have the same solution. Use your credit card for all purchases and pay it every month.
If anyone else has other learning experiences or methods, please share them. I think this information needs to be out in the open. I only share learnings with my parents, and I figure I can at least help stop others from learning things the hard way... but its hard when no one talks about this stuff.
~JL
I have 4 accounts - 2 checking, 2 saving, and a credit card.
I do everyday purchases with checking #1
Direct Deposit goes into checking #2
I pay all bills from checking #2 and give myself spending money when the direct deposit comes in. I pay myself by transferring funds to checking #1. I only carry my debit card for checking #1... so if I feel like spending more than I allocated, its impossible.
Savings #1 is short term savings and is usually empty. When I want some electronics, or something for my car, I throw some money in there until I have enough. It prevents impulse buying which is the ENEMY.
Savings #2 is long term savings. I put money in there whenever I can and the rule is simple... it can't be touched. Emergencies are the only exception, but the credit card is there for that as well.
No one needs 4 accounts, but like I said its all mental. If I had one savings account, I would save and ultimately buy electronics out of that account... then I would feel I could spend that money whenever, as opposed to the simple rule I have for that long term savings account. As for checking... I make sure the bills are paid first, then put money in savings, then pay myself. If there was one big checking pot... its easy to get carried away and before you know it, how are you going to pay the car note?
About credit cards. They are not bad if you know the rules. Luckily my parents made sure I knew the rules. If you don't know, carrying a balance doesn't affect your credit... your credit is defined by how responsible you are with your balance. This means as long as you always pay at least the minimum every month, your credit doesn't suffer, it actually builds. The way this society works, most of the things people have and are able to do is a result of spending money they don't have - that includes buying a car, home, or education. So that's why credit is so important. I am still building mine... but once credit is built, there are some nice things you can do to make it work in your favor.
Now this is a learning experience... so if any readers see any flaws, please let me know. My plan is to pay for as much as possible with my credit card. This is for 2 reasons. First and foremost, credit card money is the bank's money... not yours. Therefore if there are any disputes, its their responsiblility to dispute it, and you can sleep without worry. Granted, there may be a question of you owing the money, but at least there isn't a big hole in your checking account during the dispute. Along with this, I've noticed that some merchants take forever to complete transactions, so my checking account shows one balance tuesday night... I go and spend accordingly, and then $50 worth of purchases go through the next day... in some cases those purchases are 3-4 days old. The lesson learned of course is that you have to pay very close attention to your balance and not rely on the numbers the bank shows, but I'd rather not worry and instead have it all go through the credit card. Besides, I figure if they are the bank, they should have an accurate number for me, and they just don't. Maybe they will if I use their money instead.
The advantage to this, is that YOU pay 1 person per month - your credit card company. And if done responsibly, you'll be paying the full balance on your card every month - which means that you will not incur finance charges. The added advantage to this is that you can get a credit card with rewards such as frequent flyer miles or financial rewards. That way the spending you do anyway can benefit you. I like the idea of only paying 1 person every month, even if it is most of my paycheck. It really doesn't make too much of a difference, but spending the bank's money just seems safer to me.
As far as other lines of credit, well, your credit score takes a hit every time you open a new line of credit. So as tempting as it is to get a Best Buy card and a 10% discount on that day's purchases, my opinon is that if you are going to pay for something on credit anyway, you might as well use the card you already have. The discount they give you is not worth the hit your credit score will take.
Another lesson learned, and something to look out for... years ago I was taking care of NSBE purchases for my chapter with my debit card. This was before we had a system in place with the school. Well, I monitor my account well, but when you have more money in there then you expect, it usually doesn't set off an alarm in your mind. That's what happened to me. I saw more money than I expected, and I didn't know why, but I took that to be my balance, and I spent accordingly. This is what REALLY happened.
I paid upwards of $200 to NSBE for registrations. The money left my account and went into what the bank calls a holding area. The way it works is that NSBE has up to 3 days to claim the money that is set aside for them in the holding area. IF NSBE does not claim the money in that time, the money is put back into your account. NSBE HAS UP TO 1 YEAR TO CLAIM THE MONEY. I'm using NSBE as the example, but this holds true for any merchant. So 3 days later, I see more money in my account. I have no idea why, but I figure its right. I get down to $50 in my account, then NSBE takes all their money. I'm there on the phone with the bank trying to figure out what happened, and that's how I learned how this process works. These are things they do not tell their customers. Believe me, they make a lot of money from those overdraft fees.
Last thing I learned around the same time... hotels and restaurants like to take or "reserve" more money in a transaction then you actually owe them, to account for possible incidentals or tip. This is not the case for credit cards because it is not your money. But paying for a hotel on debit, don't be surprised if a $400 bill removes $450 from your account. That's obviously bad if you only have $425 in the account. You get the money back... but no one is going to reimburse that overdraft fee.
Unfortunately I have a few other stories... but they all have the same solution. Use your credit card for all purchases and pay it every month.
If anyone else has other learning experiences or methods, please share them. I think this information needs to be out in the open. I only share learnings with my parents, and I figure I can at least help stop others from learning things the hard way... but its hard when no one talks about this stuff.
~JL
posted by JC at 6:35 PM
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