September 14, 2021 7 min read
“Why do I need a bank account?” “Which account should I have--checking or saving? Do I need both?” I’d rather just use cash.” I’ve heard it all.
So to set the record straight and take it back to the basics when it comes to banking.
First and foremost, I am a firm believer that you need at LEASTone checking account, andonesavings account.
But why? For starters, opening a savings account is the first step (baby step), towards actively saving your money every month. Yay! Now that we’ve got that out of the way, let’s get into the good stuff.
Many of us operate in cash, meaning we don't have bank accounts or we have very little money in the bank accounts we have. For many people who work in industries where income is paid in cash, (tips, services, etc.), it is common to have a lot of cash on hand, as in literally in your pocket.
In other cases, people are simply more comfortable paying for things in cash. The idea of holding something in your hand and having to give it up is a bit harder than holding on to a debit card and swiping it. Cash on hand helps people spend less simply because they don't want to run out of cash. I understand this mentality! Heck, I’ve been there.
For some people operating in cash is a great method, and there are still systems to budget and organize your money. It is crucial that you know exactly where every single dime of your money is going and or is safely stored. I encourage people who operate in cash, to use a Cash- Envelope System, and maintain a personal budget.
However, it does incur a lot of risk. Even if you do operate on a cash system, checking and savings accounts are still a wise move for several reasons.
What is it? How does it work? And do I really need one?
Let’s start with, “what is a checking account?” This is the brain of the operation! Also known as the operating account for your money. This account is used for your day-to-day money needs.
If you are doing anything with your money at a bank, chances are it will find its way into your checking account as a first point of contact, before being used to pay bills, buy items, or transferred out to a secondary account. (More on that later.)
For most people, a checking account is where their income is deposited and where they access money to pay for daily purchases, and monthly bills.
Typically, banks offer checking accounts with,no fees. Basic checking accounts are free to have and use, but each bank has different guidelines on this. Before you open your new checking account, make sure you ask about monthly fees and if you have to pay them with the account you are looking to open.
Most checking accounts come with a debit card. Your debit card is direct access to the money in your bank account to be used/spent as needed. For more information on Debit cards, our next tutorial will break down Debit Cards in detail; how they work, best practices, benefits, and other basic information on how to use them.
Now , back to the benefits of a Checking Account and what you can do with it:
→ Pay bills
→ Make purchases (debit card)
→ Access or withdraw your cash at your local bank or using an ATM
→ Make a deposit to your account, both in a local bank and at an ATM
→ Track your monthly spending
TIP! - Banks provide you with atransaction history for each item you purchase. You can see in real time using your online banking. The Transaction history shows you how much money you are spending each time you use your debit card or visit an ATM & where that money is actually being spent. (Amazon, Groceries, Uber, etc.)
→ Transfer money to your other accounts
→ Direct deposit of your monthly income from your employer (no more waiting in line to cash a check on Fridays!)
→ No limit to the amount of purchases you make from this account
→ No limit to the amount of money transfers you make monthly, as long as there is money in this account.
The last big bonus of your checking account is the fact thatyour money is secure. If you are walking down the street and your debit card falls out of your pocket, you can cancel your card and complete a fraud claim with your bank. If any money was taken from your account illegally, you will get refunded.
If you are walking around with $1000 in your wallet and you lose your wallet…Eep! You know the end of this story, and it’s not happily ever after. Bye bye money. There is no security for cash on hand, and chances are, you’ll never see that money again.
So, besides the terror of losing all your cold hard cash from a loose pocket, let’s sum up what a checking account is, and why it’s so important
As you can see, having and using a checking account improves your financial game. Score!
**BUDGETING TIP** Use your checking account transaction history from the bank to build your monthly budget using our My Money Playbook 1.0 personal finance guide and see where you are actually spending your money each month.
What is it, how does it work, and do I need one?
Remember that piggy bank you had growing up? It might have been a traditional pink piggy bank or maybe a box or jar where you kept money? In my brother’s case he had a full blown coin counting jar. He loved dropping a quarter in and watching the balance increase; Becoming addicted to saving money is very real.
We all understand the basics of putting your money in a safe place, (your piggy bank) and not spending it at a young age. Whether or not that practice sticks is a different story!
As an adult, it’s time to up your savings game from the little pink pig, or in my case little blue piggy bank.
Your savings account is a holding tank for your money. It is the place you safely store your money, while you plan for your next financial move. Simply put, drop it in your savings account and don’t touch it! (Easier said than done, I know.)
I will use myself as an example of how a person can use one or more savings accounts to hit their financial goals, track their money, and know exactly how much they have, down to the penny!
Savings Account # 1 - Emergency Fund
This is my rainy day fund, the account I use when I get a flat tire, drop my cell phone in the toilet, (yes--that’s happened more than once), or have a medical emergency. I put money into my emergency savings account every month so I have money on hand when life happens.
Savings Account # 2 - Short Term Savings
This is my goal account, I always have a financial goal--or three--happening at one time. As I am saving for those goals, I am use this account to track and manage my money so I can get to my goal. When the time comes to make the purchase or hit my goal, (whatever that may be), I transfer the money out of this account, into my checking account, and make my dreaml a reality!
Savings Account # 3 - Long Term Savings - Don’t you dare touch this Sh*t account!
Yes, that is the name I gave my long term savings account. When I log into my online banking, it reads, “Don’t touch this Sh*T account.” It always makes me laugh, but it reminds me that I need that money for my future and building my wealth. Don’t use it, DON'T touch it.
3 savings accounts is a system that works for me. I have clients and professional athletes that have fifteen savings accounts, and some that just use one or two. Do what works for YOU!
So what’s the RIGHT way? Finding a system for saving your money that works for YOU. The reason I have 3 savings accounts is because I have to psych myself out of spending money. If my bank accounts start to look good, I have a bad habit of getting comfortable or spending too much money. (Yep-I’m not anywhere near perfect with money either.)
But I took steps to find a system that worked for me! By breaking up my accounts and using my goals to drive me to my next savings deposit, I am continuing to try and build my wealth and it keeps me from getting to spend happy.
Keep in mind, when I say my account balance is, “looking good,” that “good” number varies from person to person. What I think is a good balance might be too much or too little for the next person. Again, it’s all about what works for you.
A Savings Account allows you to do a multitude of things:
→ Securely house your money
→ Save for a rainy day
→ Track and save for a personal financial goal
→ Some banks/savings accounts will pay you to put your money in savings. This is known as interest paid on a savings account.
→ Transfer money to other accounts (limited to 6 times a month in most cases)
Typically banks offer savings accounts withno fees. Just like checking accounts, each bank has a different stance on this, so before you open your new savings account, make sure you ask about monthly fees and if you have to pay any fees with the account you are looking to open.
So, let’s sum up your savings account.
Deposit your money into your savings account, leave it there, DON’T TOUCH THAT ISH until you need it for an emergency, you are ready to hit a financial goal, or you decide to invest in yourself or your future. Build your wealth! Thrive! Your savings account(s) are a way of getting you there.
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