Banking & Debt Management
Charles Dickens once wrote, ““Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Not much has changed since his day. The simple goal of all financial efforts is to spend less than we earn. Too many of us fall just a tiny bit into debt–and as that debt compounds, so does the stress.
Luckily, there are ways to increase income by putting your savings to work. With that extra money, you can pay down debt and achieve the happiness Dickens promises. The bank you already use likely has savings vehicles which can grow your money. Check out these options to earn extra money and manage your debt.
Banking & Debt Management
A financial advisor can guide you on how to make the most of what your bank offers. Build your savings, avoid fees, manage your debt, and plan for big expenses with a plan. Below, read some ways to work with your bank to better manage your money. Click here to get started with an advisor on your plan.
A checking account is important because it not only gives you access to your money, but it gives you an automatic way to cash and deposit checks. You might not even need to pay any fees for a checking account if you maintain a minimum balance (often minimal amounts, such as $25-50). In addition to the convenience of the account, you’ll also get access to a debit card and tools to help track your spending. Cashing checks can be prohibitively expensive for people who don’t have a bank account. With a checking account, you can set up direct deposit for your paychecks, removing the need to go to the bank at all. You can also use a checking account to easily pay your bills. The money can be automatically drawn from your account, which saves time and makes sure they are paid when due.
Savings accounts give you an easy way to access your money whenever you need it. You can even link it to your checking account to make sure that you are not at risk of incurring overdraft fees. When you open a savings account, you have multiple ways to get your money, ranging from ATMs to online access for transfers. While the rate is not high, savings accounts will pay you some interest on your money. There are also high-yield options that have better rates, though sometimes they restrict some access to your money.
Savings accounts are a great place to keep your emergency fund along with any other money that you think you may need on short notice. However, there is generally a limit on the number of withdrawals you are allowed to make in a month.
Many people will start with just a small savings account early in life. This helps encourage sound financial habits. Over time, these accounts will build greater savings on interest with consistent deposits. Others may open a savings account if they are expecting a larger check and need somewhere safe to hold the money while they decide what to do with it.
Money Market Account
A money market account will give you some benefits of a checking or savings account along with a slightly higher rate of interest. The money market will pay you extra money because the bank is using your funds to invest in securities that pay a yield. There is a very small chance that a money market account can lose money, but you are paid for the risk with additional interest. Depending on the account, you may be able to write checks or use a debit card for up to six transactions a month. However, these accounts aren’t for small amounts of money. They usually have a minimum balance requirement, and if you drop below the minimum, you’ll be liable for fees.
One way to earn higher rates of interest than a savings account is to invest in a certificate of deposit (CD). These will pay more than you would receive for an average savings account, but they do have some strings attached. Banks want to know that they will have access to your money, so they lock up your money for the duration of the deposit and charge you a penalty for an early withdrawal. The longer you are willing to let the bank hold your money, the higher the rate they pay.
Debt Management Strategies
Almost everyone deals with some debt in our society today. Avoiding debt and using your money in the smartest way possible, help you leverage your income for the future. Many debt management strategies begin with getting organized and on top of your bills. If you’ve had bills fall through the cracks, the first thing that you need to do is figure out what you owe and when. You can do this by taking advantage of any one of a number of personal finance apps or programs. Here are some helpful steps that you can take in order to both manage and reduce your debt:
- Pay debts that charge you the highest interest rate first.
- Take any extra money that you save from interest payments and use it to pay back other debt.
- As soon as you finish paying off your highest interest rate debt, add that payment amount to the next highest interest payment. Your budget can remain the same and you can make as much progress as possible in paying down your debt.
- Always make sure that you have an emergency fund so you do not end up in debt for unplanned expenses.
- Make sure that you have a debt repayment strategy that fits your individual financial situation.
- When possible, take advantage of the ability to refinance or consolidate your debt.
The best strategy for paying back debt is being methodical until you reach your goal of being debt free. In a way, it is all about mindset. You should have a system in place that reduces your opportunities to stray from it and locks you into the goal of debt repayment. If you’ve struggled with debt or want to plan for your future with efficiency, a financial advisor can be a valuable guide. Contact us to be matched with one today!