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I Will Teach You To Be Rich
Week 2: Beat The Banks
Open high-interest, low-hassle accounts and negotiate fees like an Indian
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I am reading I Will Teach You To Be Rich by Ramit Sethi. This book provides a 6-week step-by-step guide to getting your finances in order to become rich.
Last week, I covered the first chapter, which focused on optimizing your credit. Week 2 promises to teach you how to beat the banks.
In order to beat the banks, you must first learn about the different types of accounts available at banks and what they are used for. In this chapter, Ramit discusses checking and savings accounts.
Checking accounts are transactional and mainly used to hold money that will not be touched for a time period between 1 month and 5 years. It is suggested that you should invest money (to be discussed at a later time) that you do not plan to touch for 5 or more years, instead of having it stashed in a savings account.
Ramit outlines three different ways that you can set-up and optimize your bank accounts.
- MOST BASIC OPTION: A checking and savings account at any local bank (or credit union).
- BASIC + SMALL OPTIMIZATION OPTION: A no-fee checking account at your local bank and a high-yield online savings account.
- ADVANCED + FULL OPTIMIZATION OPTION: Several checking and savings accounts at different banks.
I currently have an advanced set-up, but am working towards simplifying my account process. I have a checking and savings account at a large local bank (Citi). My account is free because I keep a minimum balance ($1,500) in my savings account. This is considered to be my emergency fund. I also have a joint checking and savings account (with my husband) at a large local bank (Bank of America). This account is free for us because this is where we both direct deposit our paychecks. On top of this, I have a checking, multiple savings and ROTH IRA account through Capital One 360, an online account. In addition, I have a few savings goals set-up through SmartyPig, another online savings account.
The steps to beat the banks are as follows:
1) Assess your current checking account(s)
Make sure that you are not paying any fees and determine under what circumstances your would be charged a fee at that bank. If there are fees that you cannot avoid under normal circumstances, find another bank. No one should be paying monthly fees at banks, ever. Most local banks and credit unions will waive the monthly fee if you use direct deposit (I would suggest that you set-up direct deposit into your main checking account.) or maintain a minimum balance. Most online banks (such as Capital One 360) do not charge a monthly fee under any circumstance. Ramit also mentions Charles Schwab as a viable online checking option.
2) Open an online savings account.
I have a couple of online savings accounts and find them to be extremely beneficial. The interest rate is higher than any traditional savings account and the requirement that you transfer the money into your checking account in order to access it (which can often take up to 3 business days) discourages you from spending your savings on impulse buys. However, I do think a portion of your savings should be available immediately. If you have an online checking and savings account, you can easily transfer the money to your online checking account and use/withdraw the money immediately. If you have a traditional checking account only, I would encourage you to open a traditional savings account at that same bank and save approximately $1,000 in that account to cover urgent emergencies. Amounts over the $1,000 can be saved in your online savings account.
3) Fund your accounts.
Leave one and a half months of expenses in your checking account. The extra half month of expenses are left in your account to prevent any overdraft fees, as you are getting used to paying bills and transferring money between your various accounts.
Any remaining monies should be transferred to savings. The first $1,000 should go into an easily accessible savings, while any leftover funds in excess of that amount should go into a high-yield online savings account.
*If you are interested in purchasing a copy of I Will Teach you to Be Rich, you can pick up a copy by clicking on the link below.
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