It All Starts With A Bank
Face it. We live in the 21st century. Our lives are dominated by technology because it saves us from doing tedious things that we used to spend time doing manually. There are tasks that technology greatly speeds up, and there are tasks that technology does that takes up a great deal of our time. When it comes to money, we either need to embrace technology or face obsolescence.
Technology has changed the banking industry in many ways. I’d say that the ubiquitous Automatic Teller Machine (ATM) has made the biggest impact on the industry. The ATM made it possible to meet a consumers basic banking needs day or night without the need for human interaction. That was back in the 1960′s. Now, we’re depositing checks by mobile phone, checking balances online, transferring money between accounts, and paying bills with the click of a button.
That being said, banks should be embracing technology and acknowledging that consumer behavior has changed greatly since the days of standing in line to deposit a paycheck. There really isn’t a need any longer for huge bank branches staffed by dozens of tellers (at least there shouldn’t be). Banks should be operating with small branches that have minimal staff, with the occasional medium size branch for deposit box/safe services. They should be focusing their efforts in the electronic world, making tech services user friendly, intuitive, accessible, and universal.
Your Relationship With The Bank
What was my rant about the bank all about? It was my hint to you that you shouldn’t be hiding money under the mattress anymore (most of it anyway). You shouldn’t be standing in line to deposit your paycheck or handle any other common banking business for that matter.
Banking is an integral part of our financial lives. You should have a good one. One that provides good service, embraces and quickly adopts changes in technology, doesn’t charge you petty fees, and gives you a fair rate for the money you keep at their institution.
A good bank is the core of the Extreme Money Makeover Plan because it is the central point where all of your money goes in and out of. We are starting with the bank because I don’t want you to get set up with direct deposit, bill-pay, and automatic transfers only to have to change banks later and rearrange everything.
Bank marketing will tell you that a strong “relationship” is important. They’ll tell you that the staff will get to know you by name and will be able to refer other products that will benefit you. The truth is, for personal accounts, a strong “relationship” with a bank doesn’t matter that much. That’s because once you have a strong grasp of your financial outlook, you don’t need anyone to tell you what to do. You’ll get a much better deal seeking products out on your own that fit your specific needs.
What To Look For In A Checking Account
From now on, when you think about a bank, forget about all of the fancy account names, packages, and variety of services you can have under one roof. Instead, take a look at one type of account – the basic checking account. Your checking and savings accounts can be in different places. With the internet, it’s easy enough to transfer money between different financial institutions. Consolidating just for the sake of consolidation shouldn’t even be a thought in your mind.
First, consider your accessibility options. Checking accounts are widely available and vary from one institution to the next. You can get a checking account at an online only bank, credit union, regional bank, national bank, or investment brokerage. Most people will do fine these days with an internet only checking account. If you live in a rural area, where ATM’s or bank branches might be scarce, an online only option may not work for you. Think about how easy it is going to be for you to get cash when you need it.
Second, take a look at the fee structure. You shouldn’t be paying any fees to open an account (an exception would be a one-time fee for a good credit union), any maintenance fees, minimum balance fees, fees to use an ATM or debit card (or fees for not using it enough), fees for online account or mobile access, or fees for writing checks. The average person doesn’t create enough transactions each month to tax a banks system where their economies of scale can’t keep up. You shouldn’t get penalized with fees for holding your money at the bank (you know, the same bank that makes money off your money).
Third, an ideal bank shouldn’t require you to have a high minimum balance. Sure, we’ve all had issues keeping enough money in the bank. But after some time working on the Extreme Money Makeover Plan, you’ll have a buffer built into your checking account. Still, I prefer banks that don’t force consumers to have an artificial minimum balance. However, those banks that set an attainable minimum balance and properly rewards customers for doing so are OK.
Fourth, an ideal bank should give you free ATM usage or reimburse your ATM fees. I believe in the responsible use of cash, so I think it’s acceptable for a bank to enforce limits on this policy. You shouldn’t be visiting the ATM more than once or twice a month anyway. It’s all part of being prepared and having good planning skills.
Fifth, a bank should give you interest on your checking account (even if they ask you to keep a certain average daily balance before they do so). It doesn’t matter how small the interest rate is. A good bank will give you some sort of interest on your money as a token of appreciation for banking with them. If the bank can’t pay you interest because they lose money on individual checking accounts, that sure sounds like a bank leadership problem to me.
Finally, the bank that you choose should always have consistent customer service. No matter if you are getting e-mail support, chatting online, talking on the phone, or speaking to a human in person, you should reliably get good customer service from employees that are empowered to help you. That means that you shouldn’t be placed on hold for ages to get authorization from a supervisor, transferred to someone else and get placed in a new hold queue, or have to call back on a different day. The person that picks up the phone should have reasonable authority to help you with basic needs without giving you the run around.
Bank Selection Process Summary
Go through these six points to select the best bank to host your checking account.
- Accessibility. Make sure you select a bank based on it’s accessibility in relation to where you live, work, and most frequent. Here is my personal run-down of sources that I would open a personal account with, from most likely to least likely:
- Internet/Online only bank
- Credit Union
- Investment Brokerage
- Regional Bank
- National Bank
- No fees. You shouldn’t have to pay any fees for being a good customer. Of course the exception is if you’re a bad customer (but readers of Budget For Wealth shouldn’t be bad customers!)
- No, or low, minimum balance. Try to pick a bank that doesn’t require you to have a minimum balance. However, if you can easily surpass the minimum balance and receive an incentive to do so, you should.
- Free ATM or reimbursed ATM expenses. You shouldn’t be paying anything for ATM use these days. Your reasonable ATM use saves the bank money.
- Interest. Your checking account should bear an interest rate, no matter how small it is. It’s not about making money, it’s about the bank showing their appreciation for your business.
- Good customer service. At some point, you will need customer service from the bank. Being nice to you is one thing, but being empowered to help you is another. Pick a bank that has employees whom are empowered to help you.
The Monthly vs. Annual lump-sum IRA contribution timing experiment August 2013 update.
Annual Contribution Roth IRA
|Fund||Shares||Price||Cost Basis||Market Value||Gain/Loss||Gain/Loss %|
Account Summary :
- 08/30/2013 – Reinvested $2.24 dividend for Vanguard Total Bond Market Index Fund
Monthly Contribution Roth IRA
|Fund||Shares||Price||Cost Basis||Market Value||Gain/Loss||Gain/Loss %|
Account Summary :
- 08/01/2013 – Contributed $458.33
- 08/01/2013 – Purchased mutual funds
- 08/30/2013 – Reinvested $1.83 dividend for Vanguard Total Bond Market Index Fund
Monthly vs. Annual IRA Account Comparison
|Account||Gain/Loss %||% Change From Prior Month|
- The markets were rocky in August, taking a ride up and then back down; ending up where it pretty much started.
- Earnings reports from major companies were weaker than expected and housing sales fell. I’m not sure if people are just starting to realize that the pace of real estate was going too fast, or they got spooked by rising interest rates.
- The IRA accounts in the experiment lost almost 2.5% from last month, but are still doing well. Don’t get spooked – put your blinders on and hold on for the ride. 10.58% and 14.37% is nothing to complain about.
There is no more time for excuses. Don’t wait until tomorrow to change your life. Start today – the time for action is now.
If you’re reading this, you must have some interest in having financial freedom. Don’t make any excuses on why you can’t do it or why it won’t work for you. You just need to get started and you’ll find out that you’ve done it when you’ve done it.
I know you can do it because I am doing it right now. I haven’t reached financial freedom yet, but I have overcome the major obstacle – debt. I paid off more than $57,000 in debt in just under a year. The rest just takes a little discipline.
What are you waiting for? Let’s do this!
Dig Deep – A Review So Far
Remember why you work. Take a look at your lifestyle and you will know instantly if you’re working because you have to. Let’s change that.
Time is money. We only have a limited amount of time to live. It’s pretty much the only thing that we will never know how much we really have. Treat it like a valuable resource and use it wisely.
Money is time. Start thinking about money as a store of time. Money is worth something because it is a representation of how much time we spent earning it. Make sure your time is well spent.
Debt makes you a slave. If you owe someone money, you owe them part of your life. There is no such thing as good debt. All debt is bad debt.
You can earn your freedom by saving. Saving allows you to bank your time for future use. Saving also allows your money to work for you by earning interest. The more money you save, the more time you create for yourself (without working any harder).
What’s the point? Throw away the idealistic image of how you should live your life. We’re going to start over and make financial security our top priority.
Financial freedom is what we’re seeking. We want to be debt free and have enough to live a comfortable life now and later. Our goal is to be prepared for all contingencies over time.
Financial integrity takes courage. It is hard not to live up to the expectation of others. Peer pressure is toughest to conquer in its most subtle form. Honor your values and ethics by living your life realistically. Earn what you have.
What if you have a strong and beautiful future? Being positive will give you the energy it takes to deal with everything life throws at us. Prepare to be amazed at how awesome the future can be.
Finally, dig deep – no more excuses. Take action now and don’t stop until you’ve reached your goals. Be relentless. Don’t compromise. Don’t settle for anything less than a happy life.