General Finance — Beating Broke

Why You Should Have Both a Checking and Savings Account

March 19, 2020 By MelissaB Leave a Comment

In the interest of financial simplicity, you may think it would be easier to consolidate your money into one checking account. After all, having a standard savings account seems to have gone the way of the dinosaur since most banks pay no or very little interest on principal. Yet, there are some good reasons why you should have both a checking and a savings account:

The Differences Between Checking and Savings Account

Each Account Has a Different Use

For most people, keeping their money in two accounts based on uses and goals make sense, especially for people with little financial restraint.

Checking Account

Each account has a different use. A checking account is meant to be used for regular, monthly expenses. You can pay via check, debit card, or automatic withdrawal. You can get the money out via ATM or walk-in at the bank. Most people find a checking account necessary, even if they do typically use their credit card for most purchases.

Savings Account

A savings account is used to store your money that you’re saving for long-term goals such as a full-funded emergency fund, a new car, a down payment on a house, or whatever other savings goal you have. Most of these accounts do not pay interest, or if they do, they pay a low interest amount, but some do offer more interest if you have a high savings account balance.

Each Account Has Different Rules

Saving accounts may have a limit on the amount of withdrawals you can make. Typically six withdrawals a month are allowed.

Why You Should Have Both a Checking and Savings Account

As mentioned above, there are significant differences between checking and savings accounts. Having both allows you more financial freedom and helps you meet your financial goals.

More Financial Restraint

If you struggle with financial restraint, having both a checking and savings account is imperative.

Can’t Fool Yourself

Some people with just a checking account must also put their money they are saving for larger purchases in the checking account. This can create a false sense of security because it looks like they have more money available than they do. For instance, if they have $2,050 in their checking, but of that, $2,000 is saved for an emergency fund, they really only have $50 currently available to spend. However, because they looking at the checking account balance and see $2,050, they feel comfortable spending more than they should.

Limited Access to Savings

Why You Should Have Both a Checking and Savings Account — Photo by Verygoodlord on Unsplash

An ATM card can make it so easy to access your cash, even if you don’t make it to the bank during normal banking hours. However, you may not have access to your savings account with an ATM card, which means you have to show a bit more restraint. Not having immediate access to the money during off hours or when you’re not nearby the bank can curb impulse buys, improving your financial situation. Plus, most savings accounts only give you a limited number of transactions, so you can’t as freely withdraw your money as you can with a checking account.

Automatically Put Money in Savings

Most people have their paycheck automatically deposited to their checking account. However, if you’re saving for some goal, you can go to your business’ payroll office and fill out a form for part of your paycheck to be deposited in your savings account.

Let’s say you’re slowly saving for a new car and want to put $150 a month for that goal in your savings account. If you depend on yourself to move the money from checking to savings, you might not. After all, there are always other things vying for that money. However, if you went to payroll and filled out the necessary forms, $150 will automatically go into your savings every paycheck. By having two accounts and setting up automatic deposit to savings, you take yourself and self-discipline out of the equation, making it easier to save.

Protect Your Money in the Event of Theft

If you put all of your money in your checking account, you could open yourself up to serious financial difficulties if a thief accesses your account electronically through your debit card. The thief would be able to empty your checking account, and while you’ll usually get the money back, it can take several days, unlike credit card companies which usually return your money immediately.

While you’re waiting for your hard-earned money to be returned, you may inadvertently bounce checks if you have outstanding payments that haven’t cleared your account before the thief stole your money.

In addition, how will you pay your bills and daily living expenses in the interim? If you still had a savings account, you could use that money to pay your regular expenses, but if all the money is in one checking account, you would have access to none of your money until the bank refunds what was stolen.

Caveat: Try to Find a Savings Account That Does Pay Interest

While you may want to chuck the savings account because you’re earning very little in interest, maybe it is just time to go savings account shopping and find a bank that pays more interest. A family friend, Jackie, has her savings at a local credit union, and she earns nearly 2% interest. Depending on how much you have stashed in your savings, that can add up. Jackie earns nearly $100 in interest every month, and she earmarks the interest payment to save for a new car. Every year, she is putting $1,200 away for a new car, and it costs her nothing because it’s all interest. In addition, as she keeps the interest in the account, it makes her account balance grow, and she earns even more interest.

If you’re thinking of ditching your savings account in favor of a checking account only, take a moment to reconsider. You’re financially more secure with both accounts. Maybe instead you should shop around for a savings account that pays more interest.

What is your preference? Do you prefer to keep money for your medium and long-term goals in a savings account, or do you prefer to keep it all together in your checking account? What other reasons would you give to encourage people to maintain both accounts, or would you instead argue that people just need a checking account?

Why It’s Okay to Make Financial Mistakes

February 24, 2020 By MelissaB 1 Comment

What’s the worst financial mistake you’ve made? Ask any adult, and you’ll likely hear about thousand dollar or even hundreds of thousands of dollar mistakes. Ouch. We’d all love to go through life with a great handle on our money, only making smart decisions and watching our money grow in investment accounts. But life isn’t that way. Sometimes we’re just stupid with money, and other times, we think we’re making a smart decision only to find out later that we were wrong. But that’s okay. In fact, there are many reasons why it’s okay to make financial mistakes.

Why It’s Okay to Make Financial Mistakes

Chances are you’re more financially savvy because of the mistakes you’ve made!

You Learn

The most important reason why it’s okay to make financial mistakes is that you learn from those mistakes.

When I was in my early 20s and just out of college, I was working at a job and was told that I would be getting a raise in the next few weeks. I increased my meager standard of living because I knew the raise was in the works. But week after week went by, and I didn’t get the raise. In fact, a few months later, the company went out of business. Not only was I out of a job, but I had accrued some debt by raising my lifestyle prematurely.

A few years ago, my husband was guaranteed a raise. It was supposed to come in August, but it didn’t actually come until December. Thanks to the lesson I learned in my 20s, we were very careful to avoid lifestyle creep.

You Can Help Others

When you’ve learned from your financial mistakes, you can help others avoid the same mistakes that you made.

Why It's Okay to Make Financial Mistakes — Photo by Irina Murza on Unsplash

When I went to graduate school, I did my best to avoid student loans. I chose a college that paid my tuition and gave me a small stipend for teaching two classes a semester. But after I graduated, I wanted to teach at a community college. Those full-time jobs are inaccessible if you don’t have experience. The only way to get experience is to teach as a part-timer, and part-time community college jobs pay next to nothing (about $1,000 for a 16 week class).

I went into credit card debt trying to maintain my college lifestyle (which was already frugal) while earning poverty level income. The next year, I did get a full-time community college job, but I entered that job with over ten thousand dollars in credit card debt thanks to trying to subsist on such a low income.

When it comes to encouraging my kids to save and plan for college, I urge them to try to get scholarships that will also help them pay their living expenses. We’re sending my son to SAT prep classes so he can score high enough to be in the running for a lucrative scholarship from our local college.

Final Thoughts

Making money mistakes is part of your history. Hopefully, you’ve grown and made smarter decisions because of your financial mistakes, which is an excellent reason why it’s okay to make financial mistakes.

However, if you find yourself making the same mistakes over and over again, i.e. running up your credit cards, paying them down, and then running them up again, you may need to explore more deeply why you keep following the same negative behavior patterns.

Best Ways to Get a Pay Raise

February 20, 2020 By MelissaB Leave a Comment

If you’ve been employed with a company for a few years, two things have likely happened. First, you generally have a good feel for the company culture and likely fit within that culture. Second, you are likely good at your job. You may have even added more tasks beyond the scope of your original work as people leave the company. Because most companies now don’t rush to fill a vacancy, you may be doing the work that the person who left used to do in addition to your own job. As you work harder and better, wanting more compensation is completely normal. But before you ask the boss, first consider the best ways to get a pay raise.

When You Shouldn’t Ask for a Raise

Before you start the process of preparing for a raise, take a look at your work history and where the company is now. When asking for a raise, timing is everything. Now might not be the best time to ask if either of these things are currently happening:

Your Work Record Isn’t Stellar

Did you botch a big project? Has your child had the flu and you’ve missed a number of days of work? If you’ve had any life events that have disrupted your work, now might not be the best time to ask for a pay raise. Work hard and focus on being the best employee for a few more months before you ask for a raise.

Is Your Company Having Financial Difficulty?

How is your company doing financially? Have you noticed that the budgets are tighter? Have a few people gotten laid off? When employees are let go, you may have to pick up the slack. If you’re doing more work than ever, you may feel you deserve a raise, but that doesn’t mean you’ll get one.

If the company is struggling financially, now is likely not the best time to ask. You want to pick an optimal time when your work is good and the company is on solid financial footing. If that is not the case now, then wait a few months.

The Best Ways to Get a Pay Raise

If your work history is solid and the company is fine financially, you’re ready to take these steps in preparation of asking for a raise.

Keep a List of Accomplishments

Best Ways to Get a Pay Raise — Photo by CoWomen on Unsplash

Before you ask for a raise, keep a list of all of your accomplishments. What have you done within the last few years to help others and advance your company? These accomplishments are easiest to remember if you keep track as they happen. However, if you want to ask for a raise now, take at least a week to remember all of the things you’ve done since your last raise and to write them down. This will be your best evidence that you do indeed deserve a raise.

Research How Much Others in Your Area Are Paid

How much are others in your area paid? Is your salary equivalent? Is your salary lower than the average for others doing the same type of job? Researching how much others in your area are paid helps you see if you have a case to ask for a raise. If you’re at the high end of the average, then maybe now isn’t the right time to ask. If you’re at the low end, you know your request is valid. Doing this research also gives you an idea of the amount you’d like to request for your raise.

Set an Appointment with the Boss

When it comes time to set the appointment with your boss, don’t just ask if you can chat for a minute. Instead, ask if you can make an appointment to discuss your career. This will let your boss know that the discussion may take more than a few minutes, and he or she can schedule enough time accordingly.

Praise the Company

When you’re in the meeting, be sure to first praise the company. Let you boss know what you like about the company and your job as well as how much you’ve grown since you’ve been employed there.

List your Accomplishments

One of the best ways to get a pay raise is to highlight for your boss the significant accomplishments you’ve made for the company. While you don’t want to go through a laundry list of every little task you are responsible for, you do want to impress upon your boss how vital your role in the company is.

If you can prove to your boss that you’re essential to the company, you have a better chance of getting a raise.

If Your Pay Raise Request Is Denied

It happens. Sometimes you come to the boss with evidence why you should get a raise, and you’re denied. If that happens, you have two choices:

Accept It

You can just accept that you won’t be getting a pay raise this year. Maybe you can ask again in another six to twelve months. This is a good option if you really enjoy your job and think there’s a chance you’ll get a pay raise in the future.

Apply for Other Jobs

Even if you have no intention of leaving your current job, you can apply for other jobs and see what the market is like. If you interview well, you may even get an offer from another company. If the offer is higher than what you are currently getting at your job, you can use that offer as leverage to ask your boss for a raise. However, if you go this far, be prepared to walk away from your job if your request is again denied.

Final Thoughts

Asking for a raise can feel intimidating, but you’re your own best advocate. If you feel that you are an asset to the company and that you’re being undercompensated, use these best ways to get a pay raise to improve your chances of being successful. Remember, if you don’t ask, you likely won’t get a raise. Be confident in yourself and your skills and abilities and make the case that you deserve a raise. Your boss may be appreciative and reward you with a raise.