Financial independence comes with financial responsibility. This means making sure you have the funds to pay your rent each month, purchase gas, food, and other necessities all while living comfortably and within your means.
Creating a budget can help shape your financial picture by identifying income and expenses. Monthly budgets are the most common types of budgets because many expenses such as rent and car payments are due on a monthly basis. These expenses are known as fixed payments since the same amount is paid each month. Some expenses, such as groceries and gas, are variable since the amount you spend on these items changes month to month. By deducting these fixed and estimated variable expenses from your income, you can determine the amount of income you have available to spend as you wish. More importantly, you will be acting in a financially responsible manner by setting aside that portion of your income that is necessary to pay all your monthly expenses. You’ll also be able to identify expenses that can be reduced or even eliminated.
A budget can also help you plan for the future. Part of your monthly disposable income can be put aside to help with your savings goals such as a trip or a home. Plus, you’ll have funds set aside for emergencies.
Checking and savings accounts
A checking account is a good tool to help you manage your income and budget for expenses such as rent and groceries. Checking accounts give you better access to your money. If you're going to be paying regular bills, writing checks, and accessing the ATM for cash, you're going to need a checking account.
Checking accounts, however, offer little to no interest. If you're looking for a long-term way to hold on to your money or an account that can help you achieve your savings goals, a savings account would be a better choice. Savings accounts typically have better interest rates but limit the number of monthly transactions. When it comes to choosing an account, consider going with the account that best meets your needs. Whatever you decide, be sure to look at the fees and requirements of the account. Some financial institutions require a direct deposit or a minimum balance. You may also be charged for using a bank teller, ATM access, and using Online Banking functions.
When it comes to debit cards, keep in mind that even though they may have a credit card logo on them, they don't work the same way. With a debit card, purchases are being directly deducted from your bank account, so it's very important that you always keep track of your spending. If you don't have enough money in your account to cover your purchases, you could rack up a significant amount of overdraft fees. To stay on budget, make sure you deduct each purchase made with your debit card from your account.
Keeping track of purchases
It's a good idea to keep an accurate record of debit purchases, ATM withdrawals, checks, and deposits. Also, make sure that you verify your transactions and keep your checkbook balanced using your check registry and bank statements. Monitor your account on a regular basis. This will make it easy for you to spot any discrepancies right away.
Balancing your checkbook may not be much fun, but it can save you a lot of trouble in the long run. It is also the number one tool in setting up a budget. Find out more about how to balance your checking account.
If you like to use your debit card but not your check register, Online Banking can help you keep your checking account balanced. When you bank online, you have around-the-clock access to your accounts. You can monitor your transactions and make sure that your balance information is correct. Most Online Banking accounts can even be synchronized with personal financial software such as Quicken® for added convenience.
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