This video segment from Your Life, Your Money highlights Min Lwin, an engineer and recent college graduate living in Chicago. Min discovers that he must deal with managing his finances as he lives independently for the first time. As Min tracks his living expenses, he begins to sort his needs from his wants. Min learns that online and traditional banks offer a wide variety of services with a range of fees to help people manage their money. By considering the importance of factors such as benefits, fees, and convenience, Min finds the bank that is right for him.
Make Your Money Work for You Transcript (Document)
Banks provide important services for consumers, including convenient ways to access cash and opportunities to earn money on your savings. However, banks generally charge transaction fees for these services, in order to cover their expenses. When looking for a bank, it is important to have an idea of which banking services you need and how much you are willing to pay for them. Commonly used consumer banking services include checking accounts, savings accounts, automatic teller machines (ATMs), credit cards, investments like CDs, auto loans, home loans, and small business loans. A plethora of online banking services are available as well. Basic online services include balance inquiry, account history, transfers between accounts, online credit card statements, and bill and loan payment.
Fees vary from bank to bank. Some banks charge monthly fees for maintaining a checking account. In addition, there are fees for specific transactions, such as transferring money between accounts. Most banks also charge overdraft fees for checks, debit card purchases or withdrawals that exceed the amount available in the account. These fees can balloon if the overdraft is not corrected immediately. Banks can choose to clear checks (or other withdrawals) in any order, so if a large amount clears first and causes an overdraft, you'll be charged a fee for every check or withdrawal that hits the account afterward, even if it's for a small amount. You'll also pay a fee if you use an ATM machine at a bank other than your own—most likely, you'll be charged two fees: one from your bank and one from the bank that owns the ATM. Some banks have also introduced charges for online banking services.
What’s the best way to avoid banking fees? It is important to know how much money is in your checking account, so that you do not spend beyond that amount. Also, automatic transfers between savings and checking accounts can be set to ensure that checking overdrafts are covered by savings account funds. A fee could be charged for the transfer. Some banks offer “overdraft protection,” which is a credit line that covers any checks or withdrawals made when there are insufficient funds in the account. Banks charge interest for overdrafts, so repay any money drawn from your credit line as quickly as possible to avoid high interest costs.
Be sure to consider the fee options when choosing a bank. Some banks provide free checking if a minimum balance is maintained in the account. When researching banks, it is a good idea to look at all different types of banks, including local neighborhood banks and credit unions, which might have lower fees. However, larger banks might provide a wider array of the services you need. When looking at banks, you have to weigh the costs and benefits to figure out which one is right for you.
Donald Faison: When I moved out to LA I was really on my own for the first time; my mom wasn’t around to help me out; I was running from one audition to the next, doing commercials to pay the rent. When you’re really into the daily grind, it can be hard to keep up with your finances. The trick is to make your money work for you… and not the other way around.
Donald Faison cont: Min Lwin has a job at an engineering firm in Chicago. He’s on his own for the first time and managing his own money and it’s up to him to make sure his salary covers all his expenses.
Min Lwin: I’ve been working for three months. My first paycheck came about a week into it and I was like, “Wow, this, this is, this is nice.” [small laugh] I graduated college and I wanted something to reward myself so I got a 46-inch LCD. Uh. It was about two thousand dollars. My mom was definitely worried, “Why are you spending so much money already?” And once I turned it on, you know, I had the Cubs game on and my dad was like, “Yeah, this is pretty cool.” I don’t need like new everything, although I have a nice new TV.
Ron Lieber: One of the best things to think about when you’re young, when you’re right out of college, or still in college, is that you want to be deliberate about your spending. You want to be deliberate about your saving. I have no problem with people spending what they make. Uh, you know, when you have your first job, you want to reward yourself the problem comes is when you’re spending money that you don’t have.
Donald Faison: Both Min and his girlfriend Teresa are on tight budgets, so they need to make every dollar count.
Michelle Singletary: Anytime you go shopping, to do anything, I mean, even to buy a pack of gum, you should ask yourself, is this a need or is this a want? When I go shopping, by the time I get to the counter, I have asked myself this question from every item, about 50% of my cart I have put back. I mean, the tellers hate me. But it really does help keep you in check.
Min Lwin: I didn’t have any furniture when I came in. I got a futon. So, you know, it works as a couch and a bed, which is kind of nice. I have a couple of tables, shelves, things on sale. Everything’s more expensive in the city. So rent is about seven hundred and ten a month. And utilities about twenty dollars. Cell phone? That’s [laughs] another fifty dollars a month. I’m living on my own, so no more roommates so I can’t split any of the expenses like cable and Internet and I’m paying the full, you know, hundred dollars, I buy a monthly pass on the Metro. It’s about sixty-three dollars a month.
Donald Faison: So how can you figure out how much money is coming in and how much is going out? Check this out. First step, keep track of everything you spend money on, from car payments to cappuccino. Once you’ve done this for at least two weeks you’ll have a good idea of what your total monthly expenses are. Then subtract the total from your monthly income. If you get a negative number, you’re spending more than you’re taking in. And you need to make some changes. You also need to distinguish between what you want --and what you can afford.
Min Lwin: The first thing I did when I got my offer letter from work I made an Excel spreadsheet and I said, ‘Okay, this is the amount of money I’m getting. And these are the expenses that I’m going to anticipate.” I decided, you know, I wanted to save like ten thousand dollars. And to reach that goal, then I’d have to try to keep my weekly expenditures to a certain amount. But the problem is it’s really hard to anticipate expenses. It’s not like you’re spending the same amount every week. Every penny ought to have a purpose.
Beth Kobliner: When you have the first job, suddenly you're buying coffee, you’re buying water every day. You could easily spend $1,000 a year on water, which you can get for free.
STREET FEED: How do you spend your money?
Ben: I have a budget for myself and I just don’t go beyond what I can. I mean obviously I like to have certain things that I probably can’t have.
Angela: We’re on a bi-weekly pay so I get a couple of hundred dollars every two weeks and that usually goes straight to groceries, gas.
Ellen: His biggest expense is his girlfriend, so.
Brad: Yes. As you can see, so.
Ellen: He got me a nice, nice gift today.
20% for debt payments
30% for rent
10% for savings
Beth Kobliner: You want to spend no more than 20% of your monthly take-home pay on debt payments. Pay no more than a third of your take-home pay on housing costs. You want to save 10% of your take-home pay. That's the goal, and if you can do more, even do more.
Donald Faison: To help him manage his money, Min looked for a bank, and there were plenty to choose from, both online and traditional, with a wide range of services…and charges.
Michelle Singletary: I think when you look for a bank, you ought to look at it just like you're looking for a mate. You have to look at your banking habits and choose an institution that meets the things that are important to you, just like when you go out on a date.
Min Lwin: What I was looking for was interest rate and maybe any kind of benefits or bonuses. The first goal was to pay off the student loans. And to do that, you know, I wanted to take my paycheck and put it into an account where I was getting a good interest rate. I found some online banks and I found a pretty good savings account and checking account that are tied together.
What To Look For in a Bank: No or low minimum balance Beth Kobliner: It’s very important for people to realize a bank account is a good place to start your financial life. You want to find a bank that doesn't charge you in order to keep a checking account there with a low minimum.
Michelle Singletary: I'm old-fashioned. I don't want to deposit my money, my cash into a machine. I want to hand it to someone and get her name, so if it doesn't enter my account, I can come back and say, Gladys, you didn't deposit my money.
Min Lwin: The thing with the online bank is you can’t really write paper checks. You can send checks to people but to write a check quickly that option wasn't available. There’s a bank, you know, really close to my house here. So now I have a checking account with this bank and a credit card. And the combination of the two gives me more rewards.
Beth Kobliner: You probably want to find a bank that has a lot of ATM, ATMs in your neighborhood, either where you work or where you live. And that's because banks often charge you, on average, almost $2 to use another bank's ATM every time you get money.I would say you should want to use your ATM say once a week, because you don't want to go to the ATM every day, take out $20 here, $40 there. You can really lose track of your money so quickly.
What To Look For in a Bank: ATMs near your work or home Donald Faison: Most checking accounts come with an ATM card or a debit card that allows you to access the cash you deposit into your account. Like a credit card, you can use a debit card to make purchases but you’re not borrowing money from a bank or a credit card company. You’re just withdrawing it from your own bank account. But be careful not to spend more money than you have in your account. If you do it’s like bouncing a check. And the bank is likely to charge you a big overdraft fee.
What To Look For in a Bank: Pay attention to fees Compare interest rates on savings accounts
Ron Lieber: The biggest thing that trips young people up with banks is, is the fees. There are fees for having too low of a balance, there’s fees for using too many checks.
Michelle Singletary: So that's what you want to look for: an institution that is going to charge you the least amount of money to have a relationship with them.
Get help choosing the right bank at pbs.org
Donald Faison: If you’re like a lot of people these days, you’ll probably do some of your banking online. You can have your paycheck deposited directly into your account, saving you the trouble of going to the bank and giving you access to your money a lot sooner. You may also be able to have regular monthly bills—like phone or cable—automatically deducted from your checking account. That way you’ll never miss a payment. Even if you’ve got the best bank in the world, it’s still going to be up to you to manage your money wisely.
Min Lwin: I think the most important thing is you have to know what your financial goals are.I had a goal of how much I wanted to save. I’ll probably have about maybe seven hundred to a thousand dollars saved per month.
Michelle Singletary: Priorities lead to prosperity. If you put your priorities first, then you will prosper.
RECAP: Separate needs from wants. Create a spending plan. Pick the right bank for you.
Min Lwin: I’m only 22. And I still am trying to get a feel for exactly what I want to do, but I have a general plan for my life…
Donald Faison: Min is working hard to keep his financial act together, but he knows there are plenty of ways to mess up. For instance, any time you spend more than you take in, you’re probably making up the difference by going into debt.
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