Knowing financial foundations is not an endpoint. However, it’s a great place to start your financial education. Let’s cover some basics about personal finance.
A checking account is a bank account that allows you to readily and liquidly spend the money you deposit in it. Unlike savings accounts, they typically do not pay you interest.
Some have fees, but it is very possible to find free checking accounts. You can open a checking account that is just in your name, or you can open a joint account shared with another person. If you share your account, you have a choice of being able to write checks separately or requiring both people to sign the check before it is valid.
Due to the high cost of cars and the low amount of money the average person has in savings, it is uncommon for people to pay for a car outright. Usually, a car is only paid with cash upfront if someone is purchasing a cheaper, used car, or if the buyer is cash-rich.
As such, people require a way to finance their cars. Car loans are typically written for a 5-year term and involve making a monthly payment. In many cases, the loan can be arranged for you through the car dealership at the time of purchase. They tend to be very helpful and try to make the process as easy as possible, because helping you arrange a loan helps close the sale, thereby putting money in their pocket. However, you might be able to obtain a loan through your bank or credit union with more favorable terms, such as a lower interest rate.
An overdraft occurs when you have spent more money than your checking account contains. When you do this, the bank charges you a fee for covering the negative balance.
However, there are several ways to avoid overdraft fees. The easiest way is to simply monitor your checking account and spending to ensure you don’t accidentally overspend. You may also be able to get a line of credit to draw on, or link your checking account to a savings account or credit card to cover extra costs.
Credit cards can be an expensive form of credit but they are very convenient. They typically charge fairly high rates of interest if you carry a balance and require you to make a minimum monthly payment.
The credit card company will give you a predetermined credit limit, which is the amount of money you can borrow at a time. For example, if your credit limit is $1,000 and you have spent $300, you can only spend $700 more until you pay the current balance off. Ideally, you should only use credit cards if you have the funds to pay them off in full every month. Interest costs can quickly pile up and contribute to credit card debt.
Mobile banking allows you to conveniently manage your money from the palm of your hand via your smartphone or other electronic devices. The convenience of online banking is great for people who work hours that prevent them from visiting their bank in person, or simply don’t want to visit a bank for financial transactions. It also allows the average individual to keep a closer eye on their accounts.
However, online banking is not unaffected by hackers and malware. All banks take steps to protect you from hackers, but you must also stay aware and keep a close eye on your accounts.
Prepaid cards look and work much like credit or debit cards, but you are only able to spend the amount of money that has been pre-loaded on them. These cards can be a good alternative to cash and can pay for online purchases if you have no bank account. A prepaid card can also be used as a budgeting tool, such as for vacation spending.
Unfortunately, prepaid cards do come with some disadvantages. For one, a prepaid card will not help you build your credit score. Prepaid cards can also come with fees of their own, such as activation fees or a fee to reload money on the card.
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Learning the financial foundations is the first step to a lifetime of financial security. It’s the start of a healthy relationship with money.
Medallion Bank is committed to improving financial literacy for everyone. Visit this link to learn more information on the financial foundations discussed above. You can personally track your progress through our interactive course, and create a personalized playlist of topics most beneficial to you.