Your Money_ The Missing Manual - J. D. Roth [71]
Switching Banks
Moving your money to a new bank isn't hard, but a lot of people put it off because it seems like a chore. The biggest challenge is getting your automatic transactions stopped at the old bank and started at the new one. Here's how to switch:
Open an account at your new bank using some (but not all) of the cash from your current account.
Transfer any direct deposits or automatic payments to the new account. (It may take a couple of weeks for the remaining transactions and outstanding checks to clear, so don't close the old account yet.)
Start using your new account for day-to-day activities.
After a month or two, when you're sure that everything's set up correctly, close your old account.
That's all there is to it. Doesn't sound so bad, right? Every month you put off switching is another month you'll pay higher fees and earn less interest. If you've been procrastinating, take the plunge and start the process today.
Avoiding Overdraft Fees
If you live paycheck-to-paycheck and don't track your expenses, you'll eventually be charged overdraft fees. Overdrafting is when you write a check for more than you have in your bank account. The bank will usually honor the check, but will charge you for this "favor." Here are a handful of ways to deal with overdrafts:
Some banks let you sign up for overdraft protection, which can involve linking your checking account to a second account (like a savings account), but usually takes the form of a small loan from the bank. Be careful: This option involves fees of its own.
Create a buffer to prevent overdrafts. For example, mentally set a $100 minimum balance in your account. When you drop below this level, stop spending. (Some banks will let you sign up to receive email alerts when your accounts reach a certain balance; that way, they let you know when your account drops below $100 so you don't have to keep track yourself.)
Use the envelope budgeting system (Envelope Budgeting) to make sure you don't overspend. Your bank is more than happy to let you overdraw at the supermarket, but when you use this system and have a fixed amount of cash, you can't spend more than you have.
Track your spending. Don't just trust the balance at the ATM; keep a checkbook register or use Quicken so you know how much you really have. (See Tracking Your Spending for more ways to track your spending.) Good recordkeeping may not cure all your financial woes, but it can help reduce the chances that you'll overdraw.
It seems convenient to track your spending using your bank's website, but remember that there may be checks or other transactions "in process" that don't show up online, so you might not actually have as much as the site tells you. (Even debit-card transactions can take a whole week to show up in your account.) It's your responsibility to know how much is in your account; don't simply rely on the bank.
Tip
Don't forget the number one way to avoid overdraft fees: Don't buy stuff you can't afford!
Targeted Savings Accounts
Most people work toward several financial goals at once, but keep their money clumped together in a single account. With that setup, it's easy to forget how much you've saved for each goal—and to borrow money from one goal to pay for something else.
In The Six-Day Financial Makeover (St. Martin's Press, 2006), Robert Pagliarini advocates targeted saving through what he calls purpose-driven investing:
Purpose-Driven Investing [lets us think] of each of our goals as a separate "basket." Each of our baskets represents a single goal with a clear purpose that we can see and grow. What does this mean in the real world? It means that we have a single investment account for every goal.
If you want to try targeted saving, ask your bank or credit union if you can give your accounts nicknames. My credit union let me name my new savings account Nintendo Wii when I decided to save for