When I say the word, “Finances”, what comes to mind? Your personal finances? Possible investments that you have made in the past or are planning to make in the future? Or perhaps even an overwhelming amount of stress and anxiety because more likely than not, now you’re thinking about whether your personal finances are where they should be.
While the word may have some daunting meaning for most, it’s important to understand the world of finances, even if it is at the basic level of wrapping your head around your own personal bank account. Even more crucial is for everyone to have a grasp on what I like to call, “banking basics”.
Put simply, we will refer to banking basics as those simple skills that high school and college students need to learn earlier on in their lives so that they’re ready to be independent adults once graduation hits, but moreover, so that they feel safe and secure handling their financial accounts for the rest of their lives.
- Understanding the difference between a debit card, and a credit card
This may seem like common knowledge to most, but for individuals new to the credit/debit card world, it is extremely crucial to flesh out this distinction. With a credit card, the individual is essentially able to spend as much as they want (so long as they pay it off in the end). At the end of each month, they will receive a bill for their credit card, which they will have to pay with money in either their checking or savings account. An important aspect of the credit card is the concept of interest and late fees. When you neglect to pay off your credit card bill at the end of the month, the company will charge you interest or make you pay late fees until it is paid off. Although these costs don’t seem daunting at first, remember that they do build up over time. A debit card already has money on it, when it’s out- it’s out- but more money can always be added if necessary. Put simply, always pay the credit card bill and keep checking your account to make sure you have enough money in there.
- How to write/deposit a check
Checks have recently become a less popular form of payment, but their presence is still prominent enough that individuals should familiarize themselves with how to write/deposit one. Once you have a checkbook, both processes are self-explanatory, but a quick reminder: when it comes to depositing- make sure you endorse your check. Without the endorsement, the check cannot be accepted.
- Paying off credit cards
Briefly discussed above, this is straight forward. When you reach the end of the month, you will receive a bill from your credit card company containing the purchases for the past month. You simply log-on to your bank account online, and after selecting which account you’d like to use to pay-off the card, click “Pay Now”. For those who choose not to pay online, there is also the option of sending in a check to the credit card company to take care of those costs. Its quick, easy, and stress-free, so long as you pay on time that is.
- Getting a loan from the bank
Arguably, one of the easiest ways people dig themselves into what seems to be a never-ending pit of stress, but also, completely avoidable. When asking for a loan from the bank, the most important thing to remember is that you are agreeing to pay back that loan at some point in the future. For example, say you take out a loan on a car. In doing so, you are effectively giving the bank ownership of the car as collateral until you pay them back. Failure to pay them back results in repossession of the car by the bank- so pay off your loans. Note: Don’t forget that failure to pay off these loans can affect your credit score negatively which can impact you for all future purchases.
- Savings accounts
Perhaps some people believe it’s only necessary to have one bank account- a checking account. Still, it’s important to understand that having both a checking and a savings account will give you- for lack of a better word- a little wiggle room. Given that checking accounts are primarily used for receiving wages and paying bills, the savings account allows for emergencies or goals that the individual may have- whether they be short term, or long term. When thinking about how much you should put into your emergency funds, we recommend coverage for anywhere between 3-6 months of expenses.
For those of you who have children, make sure they are familiar with all the above five things. No matter how “basic” these items may seem, I think we can all agree that being informed of these banking principles will make for a much easier life when it comes to independent living.