Importance of having a checking account: First in a series of financial tools to master
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In this series of posts, I will be covering useful financial tools that have helped me to achieve my goal of early retirement. I’m also writing this to help my nieces and nephews (and anyone else for that matter!) get a basic understanding of finance, in simplest way possible. By the way, the word ‘finance’ is the managing, creating, and studying of money and investments.
First a little background:
I don’t know about most of you, but I don’t think I ever had anyone sit me down to tell me what finance was. My concept of money was whatever my parents said, which wasn’t much. I remember my parents arguing over money more often than not, but they wouldn’t tell me anything about our family’s finances. They wanted to shield me from so called ‘adult’ topics, and this was one of them.
School education was also lacking when it came to learning about finance. There was no required course in high school or in college that prepared me for the real world. Simply put, my knowledge about finance was zilch/nada/blank slate.
Fast forward to me getting out to the real world after college. First of all, my major (music composition/music theory) was an incredibly useless degree to get a job in the real world. Type of jobs I could get after graduation were mostly marketing or sales type jobs. I remember going to an interview in New York City after graduation. I tried to act as upbeat and professional as I could during the interview. I thought the interview went well. I was ‘hired’ on the spot. Little did I know, this was a multi level marketing (Pyramid scheme) company. I knew something was up when I saw about 50-60 people crammed into a large room and people in front (recruiters) were pumping up recruits like me. After listening for few minutes, I walked out...
The moral of this story is this: It is vitally important to learn what a marketable skill is before getting out of college. Music composition wasn’t it! Don’t make the same mistake I made. If I had taken basic finance classes when I was younger, I most likely would not have chosen music composition as my major. I would have chosen something that pays well for my skill...
Tip: Everyone should learn as much about money as possible. Not just earning and spending it, but how to properly manage it then master it. These days, it is easy to learn this stuff, thanks to the internet. Whatever you’re interested in learning, you can find it online. In my day, I had to buy / rent a book to learn and/or read newspapers like the Wall Street Journal.
With that introduction, let’s jump right into the first topic: Importance of a checking account
Mastering the use of a checking account is what I consider the first important financial tool. With it, you can set up direct deposits. You can receive tax refunds deposited faster. Lately, you can also receive IRS stimulus checks deposited faster this way. You can transfer money to/from your savings accounts or brokerage accounts.
Without it and mastering the use of it, you’ll have a hard time balancing your budget. By not having a checking account, you’ll also end up paying more to cash checks, whereas depositing checks directly to your checking account won’t cost you anything.
Here are the steps you should take to open a checking account:
- Find the nearest bank near your home first. Once you find one, see where else they have branches set up. You don’t want to open an account at a bank that has just one location in your area. I recommend finding a bank that at least has a regional presence. Or better yet, find one that has a national presence. Why? In case you move or travel (like us), you can use the banks’ATMs so you don’t have to pay any fees to get cash!
- A quick Google search for ‘free checking account’ show these following banks offer this: Chase, BBVA, Bank of America, Capital One, etc. Find something that makes the most sense to you, then go ahead and open an account. If doing an online checking account is too daunting, then stop by a physical bank location to have someone walk you through. ***I use website ‘bankrate.com’ often to search for things like these myself. There are other good websites that deal with money topics like ‘investopedia.com’, ‘daveramsey.com’, ‘Kiplinger.com’, etc.
- To open a checking account, you’ll need the following: some credit history and proof of identity. If you have no credit history, then you may have to look at options like initially depositing cash and/or paying charge fees. For those who have no credit history, know that I’ve been there myself when I started out. You do have to start somewhere!
- Whether you sign up at a physical location or online, you should be receiving a checkbook via mail in few days. An important tip once you get the checkbook is to get in the habit of writing down EVERY check you write/money you take cash out of ATM and EVERYTHING you deposit! This act of balancing your checkbook will be one of the most important things you’ll need to be financially savvy. Writing down what comes in vs what goes out will be what you’ll be doing when creating/managing your budget later on. I can’t stress enough about the importance of writing down everything!!!
- When writing down things in your checkbook, write the date of your transaction, the amount, and the check number, if it was a check. If cash was withdrawn, then write the word ‘cash’, the amount withdrawn, and the date.
- Be sure to have at least few hundred dollars extra in your checking account (I prefer at least $500 to $1000) to not incur overdraft fees. This is a fee you pay when you write a check or withdraw cash, but your account does not have enough funds. Don’t get into bad habits by relying on overdraft! Always have enough in your account to cover emergencies or mistakes.
- Ultimately, the goal of balancing your checkbook (and budgeting) is to have money left over at the end of the month. Don’t spend more than you bring in each month!
- When you do this on an ongoing basis, you’ll be on your way to having a solid financial foundation for your future self!
- Be sure you’re using direct deposit if your company provides this option. This is the easiest way to deposit checks. Other options like taking a photo of your check via bank app and/or driving to the bank to deposit exist, but why not do this the easiest way?
- Get into habit of logging into your bank site (website or via app) so you can keep track of everything that’s happening to your account. Keep track of deposits made and checks written / cash withdrawn. You also want to keep track of any fraudulent activities on your account. If you find one, call your bank immediately.
- You can also set up either text or email notifications on your checking account so it’ll notify you of any account activity. This is typically set up from either ‘notification’ or ‘alerts’ section depending on the bank.
- Always be upfront with your bank if you’ve made a mistake. I’ve had to call my bank when I accidentally overdrafted from my account. They let it pass as it was my first offense. You’re better off working with the bank than not. They will help more often than not...
Thank you all for reading! On subsequent posts, we will be covering things like savings accounts, budgeting, IRA/Roth IRA, 401k, brokerage accounts, stocks/bonds, and insurance (probably others as well).
Jake
Wandering Money Pig
If you missed the previous post, ‘What’s it like handing in your resignation before retiring early...’, please click here.
If you missed the previous post ‘How to retire early...’, please click here.
Please check out our YouTube channel ‘Wandering Money Pig’ showcasing our travels and our Pomeranian dog! https://www.youtube.com/channel/UC3kl9f4W9sfNG5h1l-x6nHw
