I had an interesting experience today when I swung by the bank to deposit a check. As I walked into the bank, there was a big sign stating:
“As the teller how to avoid your debit card from being declined!”
Slightly concerned, I figured this must have something to do with my bank being bought out by another bank and changing hands. Apparently I was wrong.
I asked the teller about it, and got a response fitting for Texas:
“Oh, that’s the government setting new rules and regulations for the bank. The banker over there can talk to you about these new rules”.
Big government and heavy handed regulation of banks – oh my! (heavy sarcasm)
I walked over to the “banker” (apparently tellers aren’t bankers?). She pulled out an overdraft protection from and started her spiel:
“Well, you have a checking account, and the new government rules and regulations no longer allow the bank to automatically pay for any overdraft to your account if you overdraft your debit card. In the old system, there was a fee levied on your account for doing so. You really want opt in to this new overdraft protection program to avoid that embarrassing moment in a restaurant where your debit card is declined.”
I rolled my eyes. She continued:
“So now, you can opt in to the overdraft protection; and the slight change being instead of the bank covering the negative balance, we would just auto-draft it out of your savings account – for a fee.”
Wait… so my choices are:
1.) Leave the status quo. If I go over my account balance, my debit card is declined.
2.) Opt in to this “great new program” in which if I overdraft with my debit card, the transaction will still go through, and the bank will, graciously, auto draft it from my savings, I only need pay a fee to the bank for doing so!
Hrmmmm… hard choice. The opt in paperwork that the banker gave me only made it far enough out of the bank to be thrown in the trash. Option 1 sure seems like that’s how debit cards should have always worked.
There are tons of good personal finance sites out there. A couple that I think give some of the better advice are Get Rich Slowly and The Simple Dollar. I’ve found tons of helpful advice there, but have not yet seen one thing that we do to may sure we are able to cover all of our unexpected expenses.
The way to make your budget agile enough to absorb unexpected expenses is simple: Budget on a monthly basis, but do auto withdraws for savings on a weekly basis.
We have set up several savings accounts at ING Direct. We have one primary pool of money in a checking account, and then other accounts for long term expenses, such as homeowners insurance, car insurance, property taxes, savings for Roth IRAs, and and emergency fund.
Our monthly budget is based on a 4 week month, with four weeks worth of paychecks. We try to fit our budget within a 4 week month, which allows for an extra ‘bonus’ paycheck every 3 months if you are paid weekly, or every 6 months if you are paid biweekly. This has huge impacts on those unexpected expenses, such as those things that don’t really fit into a monthly budget. If you don’t end up using that money for unexpected expenses, it just adds that much more padding to your savings. Plus, it’s like having a mini bonus every 3 or 6 months, who wouldn’t want that?
Growing up, I would constantly hear about the pains of paying bills each month – and it was something I feared was a necessary evil of growing up. Now that I am supposedly there, paying bills each month is not really something I have to actively think about – everything is paid with automatic funding. If I had to actually sit down with each of the monthly bills and write a check and mail it out and make sure it was on time, I would certainly loathe paying bills each month. Most of these automatic transactions are set up on the Internet, and major financial transactions seem to still scare some people. Here are just a few of the online financial tidbits I’ve acquired since I have ‘grown up’.
Open an online savings & checking account
Lately, my wife and I have moved as much of our finances as we can to non-‘brick and mortar’ locations. We have a savings and checking account at ING Direct, and another savings account at HSBC. These accounts are purely online, and offer a much higher interest rate than our local brick and mortar does. Currently, ING’s savings account rate is at 4.1%, and HSBC’s is at 4.25% – much more than the 0.5% than the typical brick and mortar offers for savings accounts.
An online checking account can also give you a decent rate. ING’s is currently 3.15%, as compared to the typical brick and mortar’s rate of 0%. Assuming you have about $5,000 in you regular checking each month, thats a nice extra $157 each year just from cash temporarily sitting in your checking account.
We have set up both of our paychecks to be direct deposited to these online accounts, and once a month, we have an online account transfer funds over to our brick and mortar so we can write our rent check and any other small checks we write each month. All the rest of our monthly bills get automatically deducted from these accounts when they are due. No worries of late fees, and a maximum return on our money while it sits there each month.
Track where your money goes…automatically.
There are some great sites out there that help you see the larger picture of your financial situation. I have been trying out Mint.com lately, and have been pretty impressed with it. You essentially point it to your other accounts (via your online logins and passwords – no worries here though, they use Bank Level Security and SSL 128-bit encryption goodness). You can see your overall financial picture, and it automatically gives your breakdowns of where your money goes each month, as well as advice on how to save more.
If you feel as though you really need to expose your financial situation to peer critique, you can also try out Wesabe. This is similar to Mint, but here you reveal some of your spending trends and choices to the Wesabe community and they can opening critique some of your spending trends and give you (hopefully helpful) advice on how to better your financial situation. While I haven’t tried this one out fully, I can certainly see the appeal.
Don’t be afraid to lend or borrow money online
One of the most interesting concepts I have come across is Prosper. Prosper is essentially a person to person lending site that cuts the middle man (a bank) out of the loop. Think of it as the Ebay of online lending. Users have the ability to create a listing for a loan, and other users then bid to fund that loan. Once the loan is fully funded, the users then bid the interest rate of that fund down. For those that find themselves covered in 15-20% interest rate credit card debt, they can find loans for 9-14%, saving them bundles. From a lender’s standpoint, if they can get a 9-14% return on their money, they are doing great. Lenders typically bid on loans in small increments ($50) to reduce their risk. If a borrower can get 40 lenders to each lend them $50, they can pay off their higher rate credit cards with a lower rate loan via Prosper.
One idea that struck a chord with me is suggested by a Credit/Debt Recovery blog is that concepts like Prosper and Wesabe should be merged into one site that has community critiques of spending trends coupled with individual to individual loans. This would essentially create a form of community credit counseling – and with the current credit crunch, it sure seems like many people could use this.
The Bottom Line
Don’t be afraid to try out some of the online financial services that are out there. You can pay your credit card bills, track your checking accounts, open online-only accounts and spend much less time doing the old fashioned paperwork each month, and end up ahead financially each month. If you have any other suggestions of online finances, let me know in the comments!