Mission Invisible has consistently observed people make poor investment decisions during their careers. Throughout his military career (over 13 years of military service) he has closely examined several factors as to why poor financial decisions are made by people. These decisions range from people not knowing how to properly budget, to people not realizing the difference between “I got to have it, stuff” versus “I really need it, stuff”. The lack of education in these two areas can quickly cripple a family’s bank account. That is why it is important to learn the basic fundamentals of how wealth is accumulated, coupled with the theory “Each Dollar You Save, You Are Buying Yourself Financial Freedom.”
Let us start with the basics. Often time’s people misconstrue and commonly confuse the difference between a checking and savings account. During my research on investments, Pollick (2011) concluded that a checking account is a service provided by financial institutions (banks, savings and loans, credit unions, etc.) which allows individuals and businesses to deposit money and withdraw funds from a federally-protected account. The terms of a checking account may vary from bank to bank, but in general a checking account holder can use personal checks in place of cash to pay debts.
I strongly recommend that people utilize their checking account for everyday use/bill pay. This recommendation is based on my personal experience as a financial advisor and making my own financial mistakes. If a person requires quick cash to go to the grocery store in order to purchase small items such as soap, cereal, or bread, they should withdraw funds from their bank teller/ATM checking account, not their saving account. One would ask, “Why or How come?” The biggest reason is because most banks charge an overdraft fee (penalty for removing or transferring money in and out accounts).
When I was 19 yrs old, my mother took me to the local credit union to open up a checking/savings account. I truly felt like a mature adult after opening those accounts. Shortly after opening those accounts I made my first financial mistake – I used my savings account for routine transactions and used my checking account for saving money. Case in point, I would often withdraw money from my ATM savings account to purchase fuel at the gas station (this was before people could pay for fuel at the gas station with their debit/credit card) for my cherry red 1983 Ford Mustang. “That car was a hot ride and chick magnet”. At the end of the month when I received my bank statements, I did not understand why I was being penalized for taking money from my own account. I was for sure that I had $1000.00 saved in my checking account, but to my dismay, it was only $925.00. The money did not diminish because of my ATM fees; it was because of me constantly withdrawing money from my savings account and being penalize for it. I was crushed by knowing that I had almost lost a $1,000 because of penalties. I thought I was making some sort of financial strides. No one had told me the difference between the two accounts. My mother, the banker teller, or my friends had never explained the difference to me. I was furious and felt as if they all failed me.
There are a few reasons as to why banks penalize people for routinely taking money from their own savings account. First, the banks make money on your money. I.e. when you put your money into a savings account, the bank invests your money (loans for other people, the markets, real-estate, etc.) so they can make money from your money. Secondly, if people constantly remove money from their savings account, the banks cannot properly invest your cash and/or make money off your money as well as pay you small interest on your money. Savings accounts should be used for a rainy day, an emergency (hence the name “savings account”), or retirement. Saving accounts generally gains little interest. However, interest is accrued dependent upon the minimum balance required and the average balance one maintains.
Watching your money grow through smart investments is a great feeling. It allows one to obtain financial freedom to explore aspects of life that one would not normally get to explore. An example of this theory is, not having to take out a loan in order to purchasing a car. Another example is, purchasing shoes and/or clothes without the strain of worrying about if you can really afford it. Financial freedom allows one the opportunity to live comfortably, and not living from paycheck to paycheck. Not having to take out a loan for routine things is considered success. Isn’t that a good feeling? I know it is a good feeling to me. As you read through my future articles, you will find numerous examples of how people’s actions and decision financially made them successful and others unsuccessful. Some of the examples are humorous and some are tragic. Use these examples as a guide to your future financial decisions regardless of your current financial position in society. In my next installment, we will discuss the money market accounts and CDs.
“The rich rules over the poor, and the borrower becomes the lender’s slave.”[/note]
Reference: Written by Michael Pollick; http://www.wisegeek.com/what-is-a-checking-account.htm