Tag Archives: checking account
I was a Credit Union Virgin
I have worked at the same job, in the same building, for three and a half years. During that entire time, I have never ventured in to the mysterious tiny office next to our cafeteria. It only ever has one or two employees working inside and just the occasional customer. It contains a branch of the NARFE credit union, open exclusively for Federal employees and their families, and I’m their newest member.
Before last month, I was never curious about what a credit union could do for me. I’m not sure why. I had a small loyalty to Bank of America, but they were often more trouble than they were worth. Fees that changed year-to-year, clunky online management services, and, worst of all, poor customer service all put a bitter taste in my mouth. Yet, I’d never considered switching until a coworker told me he used NARFE to help grow his savings. That caught my attention.
In my first year at my job, I briefly considered looking into NARFE but a few things about how they operated, or my perception of it, kept me away. They weren’t a “real” bank so there weren’t tellers, a large safe, or many staff members. The concept was foreign, and I couldn’t see how it would work. It also had very few branches, meaning I wouldn’t have access to someone in-person when I wasn’t at work. I hated the concept of something so seemingly unstable. Especially in my first few years out of school, I craved stability in every way I could get it. Switching banks seemed like a risk I just didn’t want to take.
But once I had a better financial plan and a clearer head about what makes good customer service (hint: it’s not fancy tellers and tons of branches, I promise you), a new bank became a much more attractive option. Saving and I have always been in a love/hate relationship, and it’s only been in the past two years or so that I’ve come to understand the real value of it. So, one Sunday a few weeks ago, I sat down and looked up all NARFE had to offer. Every credit union is different, but let’s just say my mind was blown.
The great thing about credit unions is that they are, for lack of a better term, low maintenance. Because they don’t put a lot of money into branches and staffing, they are able to save money on actual services. The big kicker? Their interest rates. They were the lowest I had ever been offered, especially while still developing credit.
As I knew I was going to buy my first new car soon (update: It’s bought! Name suggestions in the comments, please!) this piqued my interest even more. Then I looked at the rates they offered for checking and savings as well as their fantastic gap insurance for cars, mortgage rates, and other services. After that, I was raving to everyone about how much I love credit unions.
But the truly best thing was the customer service. The branch manager, who also happens to service most of the branch’s customers, is one of the nicest and most accommodating people I have ever met. His sense of humor is fabulous and his determination to help you no matter the situation is truly impressive. He actually makes an effort to know all of his customers and go the extra mile for them whenever possible. Since our first meeting, he now calls out to me when I pass by with my lunch, he helped me carry a heavy whiteboard he saw me walking with, and he stayed a half an hour late one day to help me with my application because he knew I had meetings that delayed me getting to him. That never happened at any of my Bank of America branches.
There are definitely a few down sides, the biggest being the limited branch hours and locations. But because so much of the services I need are online, and most ATM fees are refunded, I don’t really require a branch for my day-to-day needs.
I’ve been proven wrong many times in my life. I swore I would never own a Mac, move to California, or adopt a cat. Well, I love my Mac, I hope to move to California, and my two cats are very fond of me. So I should have known my disinterest in credit unions would change over time, too. It feels good to be wrong.
Photo by Andy Sutterfield
Budgeting for Your Finance Plan
When you will use this money: Within one year
Where this money lives: Checking Account
If you read my first article in this series, you might remember that immediate spending is the money in your checking account that you use to pay all your daily expenses (rent, bills, food, etc). This article is supposed to be about your checking account—but since I’m not going to explain how to open/use a checking account, that’s a little misleading. Let’s just say, I am confident that you’ve used a checking account before—if you haven’t, you can read about it here. This article is about how the money you spend from your checking account affects the ways you save.
That’s right—we’re talking about the dreaded “B” word. No, not Brussels sprouts—we already covered that one. Budgeting. Determining how much money you have to save depends a lot on what your budget is. We’re going to go over: (1) my recommendation for the best way to budget, (2) figuring out how much money you have to save, and (3) where to put those savings. I am going to focus on how your paycheck should be divided among the categories I talked about last time: immediate spending, short-term spending, long-term spending, and retirement.
Your first task is to understand how you spend your money. In other words: track your expenses. There are two ways to do this: the easy way or the hard way. The hard way is to do it manually. To actually track for a month (and ideally more) how much you spend by keeping receipts and making a spreadsheet of everything you spend money on by category. If you prefer this option because you enjoy having a wallet overflowing with receipts, please refer to this article on How to Track Your Money. If, on the other hand, you like things to be simple, pain-free, and endlessly informative—ooh! me! me!—you should check out Mint.com.
If no one has ever told you about Mint.com, you are in for a treat because it will completely change the relationship you have with your money. Mint.com automatically tracks all your money for you. It is connected to your credit cards, bank accounts, investments, loans—you can even add property to give you a bird’s eye view of your assets and worth.
And it’s safe. You cannot move money within Mint.com, you can only see it. It will show you your net income every month (how much you make minus how much you spend) and help you create a budget and set goals. It even has pretty charts that break down your spending. Best of all, it’s free! I could go on and on, but I’d rather let Mint.com do it for me in their 90-second overview video.
Once you’ve tracked your expenses, the next step is to determine how much net income you have each month. Again, this is how much money you make minus how much money you spend. So, if you make $3,000 and spend $2,700, then you are netting $300 every month. Once you’ve set up your Mint.com account (or tracked your spending manually if that’s how you roll), you will be able to figure this out quickly. If you’re using Mint.com, simply look in the right hand column at the bottom and you will see your net income for the past 6 months. Green is good. You want to be making more money than you’re spending. If you’re not making money every month, you need to change your spending habits to get yourself back in the green. (I know—this can be hard—I promise another article later if you’re still having trouble.)
Ok, we’re going to break out a little math here. Let’s say your net income is $200 on average every month and you currently gross $2,000 a month (gross is the money you make before taxes). That means you are netting (and saving) 10% of your income ($200/$2,000 = .10). This is a great start. If you can do this—you should be happy. According to the pros, your eventual goal should be to net (and save) 15% of your gross (before taxes) income. So, if you gross $2,000, you should be aiming to save $300 of it ($300/$2,000 = .15).
Saving 15% of your income before taxes can be hard. Don’t get discouraged and don’t feel overwhelmed. Be realistic. You’re young. If you can save $20 a month—save that and increase as you can. Even if it’s small, remember why you’re saving, keep an eye on your budget, and make it a priority.
Now let’s talk about where this money you are saving is going. If you’ve just recently started saving, you want to focus on building up your short-term savings (your rainy day/emergency fund) and your retirement account. Don’t even think about the Stock Market until you’ve got this whole saving thing on autopilot with a very happy rainy day fund.
To make this a little easier to understand, this is how I save my money every month: My paychecks automatically go to my checking account. Before they get there, a portion is automatically taken out for my retirement fund (8% of my gross income after my contribution is matched by my company). Once a month, I automatically transfer a set sum from my checking account into my savings account (7% of my gross income). Note how much of this process is automated—all of it. Unless something drastic happens, all my saving will happen automatically. My goal is to keep my checking account at a fairly steady number (about two months worth of spending) while growing my savings and retirement accounts with the income I net every month.
So, what does this mean for you. Well, it depends. Are you hoping to buy a car soon? Planning a wedding? Trying to backpack around Patagonia in the near future? Then, you might want to focus on putting money more heavily in to your short-term savings (and maybe even open a separate account for the wedding and traveling). But don’t focus too heavily on the short-term and neglect your retirement fund. You can’t take a loan out for retirement.
Once you’ve built a cushion in your savings account, try splitting your money between short-term savings and retirement. If your company offers a retirement plan that matches the money you put in, make every effort to contribute the maximum amount they will match because THIS IS FREE MONEY. Do it as soon as it’s available to you. Whether or not your company sponsors your retirement fund or you are doing it yourself, have your retirement money taken out of your paycheck before you ever even see it.
Whatever you do, create a plan that you can consistently follow and then keep with it. Push your budget to reach that 15% savings mark and more. Think of sticking to your budget and saving your net income as a game you have to win. Oh wait—there’s an app for that: SmartyPig.com (and Mint.com.)
If you’re still not convinced saving is important, check out Mike Dang’s article about saving on The Billfold.
Even if this all seems overwhelming, it is never going to be easier to save than it is when you’re young before you have a lot of financial demands on you like kids, a mortgage, or a business to take care of. Keep track of your spending, aim to save 15% of your paycheck, and put that money away. Once you have a plan in place, staying on track gets easier and easier.
Photo by Meaghan Morrison