Welcome to Week 2 of Ramit Sethi’s fantastic book, “I Will Teach You To Be Rich.” This week, we’re taking on the banks. You may be thinking can you really beat the banks? You can if you learn the cheat code. But don’t worry—we’re going to flip the script and make them work for us. Ready to beat the banks at their own game? Let’s dive in!
Choosing the Right Bank
First up, you need to pick the right bank. Not all banks are created equal. Some are fee-crazy, while others are genuinely there to help you grow your money. Here’s how to find a good one:
- Low Fees: Look for banks that don’t charge you for basic services. No monthly maintenance fees, no ATM fees, no hidden charges.
- High Interest Rates on Savings: Your money should be working for you, even when it’s just sitting in your savings account.
- Great Customer Service: If you ever have an issue, you want a bank that’s easy to deal with and responsive.
Example: Imagine you have a savings account with Bank Alpha, which offers a 0.01% interest rate and charges you $10 a month for maintenance. Meanwhile, Bank Beta offers a 1.00% interest rate on savings with no fees. By switching to Bank Beta, you’re saving money on fees and earning more interest. Over time, that extra interest can really add up!
Automating Your Savings
Alright, now that you’ve got the right bank, it’s time to make saving money effortless. How? By automating your finances. Automation is like having a financial fairy godmother who makes sure you’re always saving without having to think about it.
- Set Up Automatic Transfers: Schedule regular transfers from your checking account to your savings account. Start with a small amount and increase it over time.
- Direct Deposit: If your employer offers direct deposit, split your paycheck so a portion goes directly into your savings. Out of sight, out of mind!
- Use Savings Apps: Apps like Digit or Qapital can help you save by rounding up your purchases or setting aside small amounts of money automatically.
Example: Let’s say you set up an automatic transfer of $50 from your checking to your savings every week. That’s $200 a month, or $2,400 a year. You don’t even have to think about it, and before you know it, you’ve got a nice little nest egg growing!
Finding the Best Savings Accounts
Not all savings accounts are created equal. You want one that offers a high interest rate and no fees. Here’s what to look for:
- High-Yield Savings Accounts: These accounts offer higher interest rates than regular savings accounts. Check out online banks, as they often have better rates.
- No Fees: Avoid accounts that charge monthly fees. There are plenty of great options that don’t.
- Easy Access: Make sure you can easily access your money when you need it, either through an app, online banking, or ATMs.
Example: You find an online high-yield savings account that offers a 1.5% interest rate. You move your emergency fund of $5,000 into this account. Over a year, you’ll earn $75 in interest, compared to just $0.50 if you’d left it in a regular savings account with a 0.01% rate. That’s a no-brainer!
Avoiding Common Banking Fees
Banks love to sneak in fees wherever they can. Here’s how to avoid the most common ones:
- Overdraft Fees: Link your checking account to your savings account to cover overdrafts. Better yet, keep a buffer of extra cash in your checking account.
- ATM Fees: Use your bank’s ATMs or find a bank that reimburses you for ATM fees.
- Monthly Maintenance Fees: Choose accounts that don’t charge these fees. Many banks waive them if you set up direct deposit or maintain a minimum balance.
Example: Sarah used to get hit with a $35 overdraft fee every few months because she forgot to check her balance before making a purchase. She linked her savings to her checking account, and now, if she ever overspends, the money is automatically transferred from savings, and she avoids the fee.
Leveraging Technology
In this digital age, banking has never been easier. Here are some tech tips to help you stay on top of your finances:
- Mobile Banking Apps: Use your bank’s app to check balances, transfer money, and deposit checks on the go.
- Budgeting Apps: Apps like Mint or YNAB can help you track your spending, set budgets, and reach your financial goals.
- Alerts and Notifications: Set up alerts for low balances, large transactions, and upcoming bills to stay in the loop.
Example: John uses his bank’s app to deposit checks, transfer money between accounts, and get notifications when his balance is low. This helps him stay on top of his finances without ever having to visit a branch.
Final Thoughts
Week 2 of “I Will Teach You to Be Rich” is all about taking control of your banking. By choosing the right bank, automating your savings, avoiding fees, and leveraging technology, you can make your money work harder for you. It’s time to beat the banks at their own game and take charge of your financial future.