Banking and personal finance are topics not nearly discussed enough. With such an impact to your life, it is important to understand the topic and know how to utilize banking, along with their instruments. In this article, we will cover:
- Introduction to banking
- Importance of savings
- Responsibly leveraging debt
Banking
Finding the right bank to trust with your money is a life-long relationship. Many times, the bank you have your direct deposit with will be the bank you use for years, if not decades. Beyond the standard checking and savings account, you need to find a financial institution that fulfills your needs.
A good bank should have low fees for items such as cashier checks, ATM withdraws, and overdrafts. Also, you should find a bank that offers competitive interest rates and even refunds any out-of-network ATM withdraws.
Customer service is another important factor. Unfortunately, many of the national brands lack in this area. Luckily, this is where credit unions and community banks can compete and offer you what large brands fail to provide.
Importance of Savings
Once you have found a bank or credit union that provides the services you need, it is important to open savings account. By having a funded savings account, you can handle emergencies or unexpected expenses that come your way. Your savings account should be used as an emergency fund, rainy day fund, or saving for large purchase like a vacation or home repair. Investopedia expands the 3 benefits one can get with good savings account. Miriam Caldwell from Thebalance, lists “top 7 reasons to save your money“, where she lists and elaborate the different expanded benefits of saving money.
You do not want to put all your money into savings because you want that money to grow. That is why after having a few months’ worth of living expense saved up, you should look at paying down debts and investing.
To help make your savings grow, you can look at online banks that tend to offer higher interest rates on savings. In this current rate environment, if you can find a rate at 1%, that is considered a good deal.
Quick ways to build your savings include:
- Freelancing
- Selling unused items in your home
- Side hustles (i.e. Uber Eats, Doordash, Delivering Pizza)
- Flipping items
Leveraging Debt
Now, if you need to borrow money it is important to borrow responsibly. Depending on your situation there are a couple roads.
If you have a home with equity in it, you can look into a home equity loan. This allows you to extract some of the equity in your home for things like home repairs or large purchases. Luckily, the interest rates for mortgages are at record lows.
Another tool to leverage would be a personal loan. These are typically offered through credit unions or community banks. While the interest rates seem significantly higher than mortgages, they do tend to be much lower than credit card rates. Personal loans can also vary in size to fight your financial needs.
Remember, the quicker you pay off debts the more you save in interest expense.
These are great ways to begin laying the foundation to financial success. As you continue growing you can leverage other financial products to build wealth. By having a solid savings and knowing how to responsibly leverage debt, you will be ahead of many people.