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Money Basics

Tracking the Money Flow

People have money problems for many reasons. One reason may be that they do not know how much money they have and how much they spend. Have you ever looked into your wallet and wondered, "Where's the cash I had just yesterday?" Sometimes it is hard to remember how you have spent your money. To begin to take control of your financial life, you need to start by finding out where your money goes. This is a great exercise to do with your parents.

  • Write down all of the things you think you spend money on each month and their approximate cost. Some things you may buy weekly- other things, only rarely. Keep the list.
  • Create a spending journal- a list of what you actually spend for one month. The easiest way to do this is to carry a small notebook. Make a note each time you buy something. Also, write down all the bills you have to pay. Some may be monthly and others may be only a few times a year (such as car insurance or taxes).
  • At the end of the month, compare your first list (what you thought you spent) to what you really spent.

Keeping track of your money is the first step to financial freedom. When you know where you spend your money, you can control your spending by making better choices.

Bank Accounts

In the past, you may have paid for everything with cash and did not see a need to open a bank account. However, a bank account can make your life much easier, safer, and possibly even save you money. Checking accounts can provide you with some advantages, but only if it is handled wisely. Often employers and government agencies prefer to pay you electronically through a financial institution, rather than giving you a check. When you write a check for more money than you have in your account, the check is called a "bounced" check and are usually called "insufficient funds" checks or labeled with "NSF". Not only is this a very costly mistake, it can result in a lower credit score (more later on credit scores) and being banned from having any account at an accredited financial institution.

Be sure to ask the following questions when opening a checking account:

  • How many checks can I write each month without being charged a fee?
  • Do you mail a monthly statement of my account?
  • How much are the automated teller machine (ATM) fees here and at other locations?
  • Are there monthly fees on the account?
  • If my balance is always higher than a certain amount (minimum balance), can I avoid a monthly service fee?
  • What is the fee for returning "bounced" checks?
  • Does the financial institution have online services that allow you to manage your account and pay bills? Are these services free? Are they accessible?

Balancing Checkbooks

Having a checking account offers freedom and security, but it also comes with the responsibility of managing your account. Here are a few tips to successfully track your money:

  • Record checks, withdrawals (especially ATM transactions!), and deposits in the check register that comes with your checkbook.
  • Keep the register total up to date.
  • Do not write checks for which you know you don't have the money in your account to pay.
  • Remember that when you deposit money into your account, the funds may not be available immediately. To be sure, ask the employee depositing your money when the funds will be available.
  • Look carefully at your statement every month to be certain that it agrees with the numbers you have written in your check register. If not, you will need to review your check register with your statement to find out what is causing the difference. This is called "balancing" your checkbook.
  • Be careful with online banking. While this can make managing your funds easier, it should not be used as a substitute for carefully tracking your spending.

Paying Bills

Paying your bills is an important part of becoming an adult and a good money manager. Pay your bills as soon as you get paid and mail your payments immediately. Also, check with your financial institution or some service providers (such as cell phone companies) about online payments or setting up automatic payments. However, carefully monitor your direct payments to ensure that you have the money in your account to cover the expenses as well as to oversee that the correct charges are made to your account.

Payday Lenders, Check Cashing Services, and Car Title Loans

Quick fixes–offers to help you with your money problems–are usually "money traps". Pawnshops, payday lenders, and check-cashing stores offer fast cash in convenient locations. However, they often end up costing you more money–and potentially putting you deep into debt.

  • Payday Lenders make loans to people who have both a checking account and a job or are receiving government benefits. The borrower (person who needs the money) writes a "postdated check" to the store. "Postdated" means that they put a future date on the check-the date the borrower will be paid next. If the person needs $100 in cash right away, the check (which includes interest) might be for $125. The payday lender gives the person cash immediately. Then, on payday, the store cashes the check. That quick $100 cost the person an extra $25 on payday. Plus, the person has $125 less to spend now and that can be a real pinch. Often, borrowers are tempted to get another payday loan to cover their current expenses winding up in a never-ending cycle of debt. What is worse is that some payday lenders charge as much as 300 percent in interest!
  • Check-cashing stores charge fees for cashing checks. The fee usually is between 1.5 percent and 8 percent for every $100. For example, if you give them a $100 check, you may pay $8 to have your check cashed. So, instead of getting $100 in cash, you will only get $92. In contrast, people with accounts at financial institutions or banks usually are not charged a fee to cash a check.
  • Car title loans are offered by many pawnshops and check-cashing businesses. In return for these loans, you give the lender some information about yourself–and the title to your car. The amount loaned usually is only a small portion of the value of the car. If you miss even one payment, you could lose the car–and all of your payments.

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