Your checking account is an important part of your financial planning process! If you ever want to become financially independent, you need to know how to make the best use of it and recognise how it interrelates to all the other ways of saving and spending that you need to do in your life, whether you are just starting your career or in the last act of your life.
The first thing is to understand how to use a checking account.
According to most banks, checking accounts are intended for high numbers of transactions, with a low cost per transaction. Because of the high volume of transactions, checking accounts tend to have little or no interest unlike savings accounts, certificates of deposits or term investments. Savings accounts, CDs and term investments have few transactions against them, and hence the cost per transaction is high. You make up for this by having a higher interest rate being paid to you – banks and lenders can count on the money being there for their investments.
In today’s world, checking accounts tend to be forgotten. Much of the spending today is done through electronic means, such as credit and debit cards, EFT, direct payments and so on. Even these are being shunted aside with PayPal and ClickBank and similar technologies. While these methods are great in that they keep a record of your expenditures, the transactions still have to go through a bank account in some form. This form is still best done through a checking account.
You can link your account to your EFT card directly; this allows you to pull out cash from an ATM machine when you need it. This is extremely handy when you are travelling or even when you are shopping.
You can make direct payments from your checking account to pay any bills you receive. These payments can be your rent, your mortgage, utilities and just about all your regular bills. This can include your house, contents, car and other insurance.
Your pay check can be electronically put into your account, and you can set up your direct payments so that you set aside a small amount to go directly into your savings account and its higher interest rate.
You can link your PayPal (or other on-line system) so that you can purchase over the Web.
You can set up your account to have an overdraft facility. Not that it is recommended that you use it, but it can come in handy when you have to spend a little more than you expected, or when the electronic payroll has a glitch and delays the payment to you for a day or so.
There are many ways you can use your checking account to make your life (and bill paying) easier. Limitations are more lack of imagination on how to use it than anything else.
So, despite all the ways you can now spend your money, your checking account is central to your financial well-being. It allows you to control how and how much you spend.
Make it the centre of your financial planning and you can’t go too far wrong.