You probably already have a checking account.
Maybe you’ve had it for years.
But do you know how it works, really?
The first thing you need to know about checking accounts is that it’s expensive to be poor. Seem like a strange and random thing to conclude about checking accounts?
Let’s look at some numbers.
Majority of checking accounts require either a minimum balance or a direct deposit of a specific amount. If you don’t meet this minimum each month, you get a charge. Usually it’s something like $7 per month. While $7 is not a lot of money, it can add up. Plus, you can get a burrito at Chipotle for about $7, and I’d rather have that.
Next we have overdraft charges. Every time you spend money that you don’t actually have in your account, the bank covers you. But not for free. They will charge you $36 per overage. And for every day that your account is overdrawn, you’ll get an additional $7 charge (that burrito from Chipotle is calling your name!).
So, let’s say you’re in a situation where you need to pay a parking ticket today. It’s $30 but you don’t get paid for another week and you’re already out of money. You use your debit card anyways. Your account is now -$30. Now comes the overdraft charge of $36. So, you’re now at -$66. But you have a whole 7 days until you get paid. That $7 per day, times 7 days. $49. You’re now at -$115. That parking ticket just got real expensive, real fast – we’re talking 16.4 Chipotle burritos expensive.
If you’re still reading (and not on your way to Chipotle getting a burrito right now) then I have good news for you. There are ways to avoid all these fees.
Don’t fight the system, make the system work for you. Complaining that you’re set up to fail won’t keep money in your pocket. You need to take responsibility for your own finances and not rely on anyone else to, especially a financial institution.
Remember, the system is not likely to change anytime soon because a financially illiterate population is much more profitable than a financially savvy one.
Here are 3 steps to taking control of your checking account:
Educate yourself on all the fees that come with your account in order to avoid them. In 2016, the 3 largest banks in America made over $6 billion from ATM and overdraft fees alone. Don’t be a profit center for your bank. You might have to switch banks if you cant meet the requirement to have a free account.
Set up a budget and follow it so you don’t overdraft your account. This seems pretty obvious, yet most people don’t bother with setting a budget. Make things easy on yourself and use my basic budget. It’ll work for just about anyone regardless of income.
Set up a cushion account so when you do get that parking ticket and you’ve already used up your budget for the week/month, you have something to fall back on. It’ll also keep you stress-free when it comes to finances.