Your Account Setup

This is something that people maybe don’t think about as carefully as they should. As someone working in the financial industry I’ve seen people using savings accounts as their daily transacting accounts – that means high transaction fees, in their particular case. I’ve also seen people that could save money decline the opportunity, because they didn’t want to open another account (or didn’t trust the tellers, a common misplaced suspicion). They weren’t making decisions based on the numbers, or the facts.

I myself bank with more than one bank, as the products and services of each hold different benefits for me. I am also a fan of centralization, though. If you can get all the accounts and features you need with one bank I’d highly recommend it. Also because the longer you’ve been with a bank, the better it is for you when you have special circumstances or requests. Disclaimer; always go to licensed professionals for true advice. I speak only from my personal experience and education accumulated so far (not a certified financial planner yet)!

If you have relatively simple banking needs, like me, this is how I think about account needs, as in the actual bank accounts you hold with your financial institution:

  1. Today Accounts
    Your everyday banking account should be a chequing account, possibly with a credit card on the side. Chequing accounts will have many, or unlimited, transactions allowed – make sure you look at what you’ve got with your current financial institution and see if it’s really what you need.
    On the subject of credit cards; they’re a great way to build a credit score by showing you know how to use credit responsibly. The “right” way to use them is to pay for items with them, and pay the balance off right away (or at least every month), preferably before interest starts accruing. The wrong way to use them is to max them out and hold the balance there, paying the minimum payment every month. Interest is high on credit cards. If that’s your situation, look into transferring those balances to lower interest loan, like a Line of Credit – or better yet, pay those balances off entirely.

    Another thing to be aware of; some banks will give you a partial or even a full refund for your monthly account fees if you have the right product mix with them. Just another reason to take another look at your account setup and see if it’s working for or against you.

  2. Rainy Day Accounts
    Emergency fund: ever heard of one? You should have one. It’s recommended to have AT LEAST 3 months of salary saved up for a rainy day (job loss, sudden medical emergency, unexpected car repair bill, etc.).  A great way of setting one of these up is following the principle of paying yourself first.
    Basically, you need savings. Unexpected events are a fact of life. Set up an automatic transfer of funds from every paycheck you get into your savings account (aim for 20%, let’s say) – it’s not a “privilege” or an “I’ll do it later” kind of thing, it’s a bill like any other bill you have to pay – except this bill will make you richer in the end. 😀
  3. Someday Accounts
    These are your investments. Maybe it’s a mutual fund or a trading account you direct yourself – but money you’ve got saved up that’s not for emergencies should be invested to grow over time. Even interest in a savings account is better than nothing. There’s a lot you can say about investments, but for now let’s just say that if you’re new to that game, your best bet is to go in and discuss your needs with an adviser at your financial institution.
    For example: you want to buy a house in 3 years, so you’ll need your savings for the down payment by then. But, you want to earn a return on them until that time, to have a little more money to work with when the time comes – without risking losing your savings. Perhaps a Guaranteed Income Certificate that lasts for 3 years would be a good fit?

    Having a basic background in personal finance will help you judge the soundness of their advice, but the industry overall is quite regulated, and it’s their job to discover your needs and pair you with the right product. Legally, investment advisors can’t recommend something not in your best interest.

This is a very simple, basic step towards decluttering and ironing out your personal finances: and practical. So give it a go, if you use online banking, it’s even easier. Then, onward and upward!

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