Bank charges can be absolutely devastating to your financial well being, especially if you don't understand when, how, and the reasons why you may incur bank fees and finance charges!!
In all honesty, the use of banks, debit cards, and credit cards is an area where many average people waste a significant amount of money.
Not only are many average people spending beyond their means, but they are compounding the problem by not knowing how banks, credit cards, and debit cards work.
Let me explain...A few years ago, I was trying to help a lady obtain financing to purchase a home owned by one of my real estate investment companies.
At the time, the mortgage broker, who was working closely with her in an effort to help her obtain financing to purchase the home, asked her for 12 months of bank statements...necessary to verify income, available cash balance, and rent payments for the past 12 months.
Upon obtaining copies of her bank statements for 12 months, I was absolutely appalled at the amount of bank service charges she incurred every single month for a full year.
Although I don't have exact figures, I would estimate that she was charged somewhere in the neighborhood of $300-$500 in bank charges every single month that year.
These bank fees were incurred as a result of a variety of different transactions.
In addition to a regular monthly service charge on her bank account, she also incurred insufficient fund charges, negative balance charges, analysis charges, debit card usage charges, and various other "fees per transaction" charges.
In spite of all this, she was still able to "make ends meet", but it made me sick to think about how much better off she would have been if she just knew how to manage her bank account on a daily basis.
Needless to say, this was very damaging information that was given to the mortgage broker, and she was denied the loan.
Furthermore, let me emphasize that banks, debit cards, and credit cards CAN be your best friend.
On the other hand, when not properly used and managed, banks, debit cards, and credit cards CAN and WILL become your worst enemy.
Therefore, through this webpage, I will attempt to give you some ideas and suggestions for properly managing your bank account, as well as your debit cards and credit cards.
Throughout my years in the accounting and real estate worlds, I have been absolutely amazed at the number of people who not only did not know how to manage their bank account, but didn't even have a bank account in the first place.
In my opinion, having a bank account, more specifically a checking account, is essential to properly managing your money.
If you are operating without one, and are simply following a purely CASH lifestyle, this may prevent you from obtaining a significant amount of debt.
On the other hand, however, your CASH is constantly at risk of loss due to theft, losing it yourself, improper budgeting, spending it too quickly, and not having enough left over for essential expenditures later.
If you are anything like me, as soon as you have a few bucks in your wallet, it's gone before you know it...you have no idea what you spent your money on, and you really have very little to show for it.
Therefore, I'd suggest that EVERYONE should use a checking account to properly manage their money.
In doing so, you need to keep track of all the money that is constantly going into and out of your checking account on a daily basis.
A couple other options are to use much more basic, but FREE softwares, such as the online version of Quicken available at Quicken.com or a highly popular, FREE money management software available at Mint.com.
All of these softwares will help you keep track of all of your income (your paychecks, social security deposits, retirement account deposits, and all other miscellaneous deposits INTO your checking account).
In addition, this will enable you to keep track of all of your checks you write, debit card transactions made, ATM withdrawals, bills paid online and automatically drafted out of your checking account, and all other miscellaneous withdrawals.
WARNING: it is absolutely imperative that you record the transactions into and out of your account on a daily basis. If you do not do this, you will fall behind, forget about various transactions that you made, and will get yourself into trouble with overdrafts, forget to pay bills, incur significant bank service charges, etc.
The free versions of Quicken and Mint are set up to handle most basic household finances. They will help you manage your money, budget your money, reconcile your bank account, along with many other features that are helpful in getting your personal finances under control.
If you are just getting started, and have never completely tracked and managed your money before, the FREE versions of Quicken and Mint should work just fine...helping you to manage your checking account and avoid costly bank charges!
Most banks nowadays have FREE versions of their checking accounts, with no monthly service charges and in return you earn very little or no interest on your money. Oftentimes, the banks will even give you your first batch of checks free, while other banks may charge you $20-$25 for your checks.
Keep in mind, that using these FREE checking accounts that I recommend are simply a way for you to start properly managing your money. If your desire is to have your money work for you by earning interest and dividends, that is another discussion for another time. But let's get your personal finances under control first.
These FREE checking account at banks are only free if you follow their rules, which are usually very basic and easy to follow.
Oftentimes, if you manage your checking account properly, the only charge you'll ever incur is for your checks. And nowadays, with the ability to pay bills online (either through the bank's website itself or directly at the creditor's website), you may be able to reduce your checkwriting to a minimum.
On occasion, you will have the need to write a periodic check, so it's probably not a good idea to do without physical checks altogether. It's a small cost for getting your personal finances under control.
Again, I emphasize, please keep track of all your deposits and all your checks and withdrawals. Also, please keep in mind that if you write a check, you must record it in your bank transactions, even though it may not come out of your bank account for days or sometimes weeks, depending on who the check was written to. Theoretically, after you've written a check, that money is no longer available to you. Your checking account will not reflect this reduction in your cash balance right away, as it may take a few days for the person, vendor, or creditor to deposit that check on their end once they received it.
However, if you do not record this check right away, then there's a good possibility you may forget about it, causing you to overdraft your account a few days later when the check is cashed. Not only that, but now the bank will charge you insufficient fund charges through your "free" checking account, causing your account balance to go even further negative.
Equally as bad, if not worse, is that your bank may "bounce" the check (meaning that it will not come out of your bank account because you didn't have sufficient funds available to cover it), and will send the check back to the vendor or person you wrote it to, informing them that you didn't have sufficient funds to cover it. This may lead to additional bank charges from your bank, additional charges from the vendor you wrote the check to, the embarrassment and hassle of still having to pay that person or vendor, plus problems with the police and law authorities if this situation is not resolved timely and/or continues to happen.
I am no attorney or police officer, but throughout my life I have seen several people get into trouble with the law due to writing "bad checks".
Furthermore, the problem continues to snowball, as the bank will charge you additional "negative balance charges" each and every day that you don't bring your account balance back above zero.
Again, this can all be easily avoided, and your bank charges will be eliminated, if you stay on top of your bank account and record ALL of your bank transactions when they occur.
This section is simply an "overview" of how to eliminate bank charges...in the near future I will be writing some additional webpages on many of the specifics of writing checks, reconciling bank accounts, and all of the other various parts of properly self managing your checking account.
Essentially, debit cards look very similar to credit cards, and can be used at most stores in much the same fashion as the credit card used, with one major difference.
When you use a debit card, the money immediately comes out of your checking account... so if the money is not available in your account, theoretically, the transaction will be denied! This is not always the case, however, as many banks will allow the transaction, and then charge you an overdraft bank charge.
Again, the problem will continue to snowball, as the bank will continue to charge you additional "negative balance bank charges" each and every day that you don't bring your account balance back above zero, essentially causing you to go further and further below zero...making the problem that much more difficult to rectify.
Therefore, it is essential that you stay on top of your debit card charges by constantly recording them and ensuring that your bank account never goes below zero.
Furthermore, with respect to debit cards, I have seen many financial institutions charge fees for the use of their debit card. These fees usually range from $.25-$.50 per transaction, and usually require a pin number to complete the transaction at the store.
HINT: when using your debit card at the store, the checkout clerk will usually ask you, "Debit or credit?". I always respond, "CREDIT!". Although the money will still come directly out of your account, by responding "CREDIT", you can usually avoid these small debit card transaction fees. To this day, I'm not sure why anyone responds, "DEBIT" (unless there are certain cards that only allow them to be used if you respond "Debit"), as they almost assuredly will be charged the $.25-$.50 per transaction fee.
Your debit card also serves as an ATM card. This will allow you to use various ATM machines across the country to access your cash from your account when the need arises.
Again, please be very careful to only use ATM machines associated with your bank.
Most ATM machines will charge you a fee of a few dollars, simply for accessing your cash from an ATM machine that is not associated with your bank. Furthermore, this problem again snowballs, as YOUR bank also charges a fee for not using YOUR bank's ATM machine. You may not know about or even see this charge until you get your bank statement at the end of the month.
Again, these are additional bank charges, fees and expenses that can be avoided with a little proper planning.
While I'm on the subject, I'd like to suggest that you use your ATM card as little as possible.
The reason: We, as human beings, usually do a very poor job of tracking our "cash" expenditures, but when we write a check or use our debit card we have a paper trail showing where all of our money was spent.
In addition, if you're not very disciplined in keeping track of your receipts, your bank statements showing your checks and/or debit card transactions can provide proof that a particular bill was paid.
For this reason, I am a big proponent of not carrying a significant amount of cash on me personally, as almost all places nowadays take checks and debit cards. Therefore, I can always track my spending, as well as avoid situations where I spend "cash dollars" too quickly.
Again, using credit cards CAN be very beneficial when used properly. On the other hand, the improper use of credit cards CAN and WILL become your worst enemy.
Please, please, please be careful with the use of credit cards.
As I will write about on another webpage in the near future, statistically people spend 25% more money when they use a credit card instead of cash or writing a check. (Note: since the cash comes directly out of your bank account right away when you use a debit card, I consider the use of a debit card the same as cash.)
If you are properly managing and controlling your money, the use of the credit card can allow your money to further work for you.
The use of a credit card may allow you to keep your money in your checking and/or savings and/or investment accounts for an extended period of time...until your credit card charges need to be paid off next month.
Please do not fall into the trap of continually carrying credit card balances month after month after month. The interest charges will eat you alive.
But if you are able to pay your credit card off each and every month, you will not pay a dime's worth of interest, so essentially the credit card company has given you an interest-free loan each and every month.
In this case, the interest rate the credit card company charges doesn't matter because it never comes into play, as you are paying your credit card charges off without incurring any interest.
If you can become disciplined enough to purchase your items on a credit card one month (without spending 25% more money than you normally should because you are using a credit card), and then pay that credit card off the following month, not only will you allow your money to work for you, but you will also build your credit rating.
Now, I don't know all the complex formulas that go into the calculations of your individual credit scores, but I know that using a credit card and then paying the balance off each month shows that you have the discipline to pay your bills on time.
This can be very helpful when it comes time to buy or lease a car, purchase a home, or many other transactions that require good credit ratings nowadays.
Warning: Please do not misunderstand me here... I do NOT advocate people going into and carrying debt from month to month to month. This technique of using credit cards to your advantage should only be used by those who are disciplined enough financially to pay the balance off each and every month.
You also have to be very careful, not to allow your outstanding balance to be extremely close to your credit limit. As far as I know, this is one of the factors that drive your credit scores down.
However, it's always nice to have a credit card to be used in case of emergency... but again, I warn you, that if you can't control your spending on the credit card, or you can't pay off your credit card balance each and every month, you're better off cutting it up and doing without.
If you can't do those things that I mentioned above, not only are you going to get hammered with high rates of credit card interest, but you must also be very careful to ensure that you do not ever exceed your credit limit, or pay your bill late.
If you do so, your problems will continue to snowball, at the credit card company will continue to charge you over the limit bank charges and late payment fees.
Pretty soon, before you know it, you are in credit card debt up to your eyeballs and have no idea how to get out.
In the near future, as I mentioned above, I will be writing a specific webpage about credit card debt relief.
In summary, to take control of your personal finances, the proper use of banks, debit cards, and/or credit cards will undoubtedly be a very important factor. As I previously mentioned, however, you must learn and understand how each of these financial tools works, to avoid the snowball effect of constantly costing you an arm and a leg in bank charges. If you can't handle these tasks on your own, it would be a very wise decision to find a good accountant or bookkeeper to assist you.
To Your Success...