Budgeting & Banking

Bank

A financial institution that accepts deposits, makes loans, and provides other financial services.

Financial Institution

Any organization that deals with money or finances.

Deposit

Money placed into a bank account.

Loan

Money borrowed from a bank.

Interest

Interest is the cost of borrowing money or the reward for saving money. When you save money in a bank account, the bank pays you interest as a reward for letting them use your money. The interest is usually a percentage of the amount you have saved. If you take out a loan (ex. for college, a car or a house), the higher the interest rate, the more you will have to pay back on top of the amount of the loan.

FDIC

Federal Deposit Insurance Corporation, a U.S. government agency that protects bank deposits.

Checking Account

An account used for everyday spending with a debit card.

Savings Account

An account for saving money and earning interest.

Direct Deposit

Automatic transfer of your paycheck into your bank account.

Balance

The current amount of money in your account.

Transaction

Any activity that affects your balance, like deposits or withdrawals.

Recurring Transfer

A regular transfer of money between accounts, like from checking to savings.

Auto-Pay

Automatic bill payment from your checking account.

Overdraft

Spending more money than you have in your checking account, resulting in fees.

Certificate of Deposit (CD)

Fixed-term investments with guaranteed interest rates.

Money Market Account

Hybrid accounts that offer checking and savings features.

Credit Unions

Credit Unions are member-owned financial cooperatives that provide a range of financial services, such as savings accounts, loans, and checking accounts, to their members. They focus on serving their members and typically offer lower fees and better interest rates compared to traditional banks. Members of a credit union share a common bond, such as working for the same employer or living in the same community, and profits are returned to members in the form of dividends.

Online Banks

Banks that operate exclusively online, often offering higher interest rates.

Investment Banks

Banks that focus on investment and corporate finance.

What does it mean for an account to be FDIC insured?

It means the government guarantees the safety of your money up to $250,000 per depositor, per bank.

What is interest?

The cost of borrowing money or the reward for saving money.

What is a fixed interest rate?

An interest rate that stays the same for a set period of time.

What is a variable interest rate?

An interest rate that can change over time.

What does deposit mean when talking about bank accounts?

To add money to your bank account.

What does withdraw mean when talking about bank accounts?

To take money out of your bank account.

What is a check?

A written order to a bank to pay a specific amount of money.

What is the difference between a checking account and a savings account?

Checking accounts are for easy access to money; savings accounts are for saving money with interest.

What is the difference between net pay and gross pay?

Gross pay is the total amount earned before any deductions; net pay is the amount received after deductions such as taxes and insurance.

What are fixed expenses vs. variable expenses?

Fixed expenses are costs that remain consistent over time, such as rent or mortgage payments, insurance, and salaries. Variable expenses fluctuate, such as groceries, utility bills, and entertainment.

What are three common housing costs in addition to rent?

Utilities (e.g., water, trash, sewer), electricity, and internet.

What is renters insurance?

A policy that protects renters from financial losses due to damage or theft of personal property.

What should you consider when choosing where to live?

Cost of living, job availability, neighborhood desirability, crime rate, quality of education, and commute.

What fees can you expect to pay when signing a lease?

Security deposit, pet fee and deposit, application fee, and possibly a broker’s fee.

How does geographic location impact transportation options?

Location affects access to public transportation, ride share programs, walkability, biking safety, and car necessity.

What is a budget?

A plan that outlines expected income and expenses over a specific period.

What is an ATM?

Automated Teller Machine, a machine that allows bank customers to make transactions such as withdrawals and deposits.

What is a bank statement?

A summary of all transactions in a bank account over a specified period.

What are fixed and variable costs of owning a car?

Fixed costs are expenses that do not change regardless of the number of miles you drive, such as car payments, insurance, registration fees, and depreciation. Variable costs fluctuate based on usage, including fuel, maintenance, repairs, tires, and unexpected breakdowns.

Housing is the biggest expense for most American households

TRUE. Housing typically accounts for a significant portion of a household's budget, often ranging from 30% to 50% of total expenditures. This includes costs such as rent or mortgage payments, property taxes, homeowners insurance, and maintenance costs. The high cost of housing is influenced by factors such as location, housing market conditions, and the overall economy, making it the largest single expense for the majority of families.

Entertainment is one of the 3 biggest expenses for most American households:

FALSE. While entertainment expenses, such as dining out, movies, and subscriptions, can accumulate and represent a significant portion of discretionary spending, they typically do not surpass housing, transportation, and food expenses in total budget allocation. Most American households prioritize spending on essential needs like housing (rent or mortgage), utilities, transportation (gas, public transit), and groceries. Entertainment, being a variable expense, is usually adjusted based on income and financial priorities.

Variable expenses tend to be harder to reduce than fixed expenses:

FALSE. In fact, variable expenses, which fluctuate based on usage and consumption patterns (such as groceries, entertainment, and dining out), are typically easier to reduce than fixed expenses, which remain constant over time (such as rent, mortgage payments, and insurance). By assessing spending habits and adjusting discretionary expenditures, individuals can often make significant reductions in variable costs without impacting their essential living situations.

What are some effective strategies for saving money?

1. Create a budget to track income and expenses: Outline all sources of income and categorize expenses (fixed and variable) to understand spending habits and identify areas for savings.

2. 2. Set specific savings goals: Define clear, achievable goals for short-term and long-term savings (e.g., an emergency fund, vacation, or a home).

3. 3. Use automatic transfers to move money to savings accounts: Set up automatic transfers from checking to savings accounts right after payday to ensure consistent savings without manual effort.

4. 4. Cut unnecessary expenses, like subscription services: Review monthly expenses and eliminate or reduce non-essential costs, such as unused subscriptions or memberships, to free up money for savings.

5. 5. Take advantage of discounts and cash-back offers: Use coupons, loyalty programs, and cash-back apps to save money on purchases, allowing you to allocate more towards savings.

Ways to Put Money INTO Your Checking Account

1. Make a cash deposit at your bank. 2. Deposit a check at your bank. 3. Use an ATM to deposit your money. 4. Make a mobile deposit. 5. Use Direct Deposit. 6. Transfer money from another account.

Ways to Take Money OUT of Your Checking Account

ATM withdrawal using a debit card

Visit a bank teller to make a withdrawal

Make a purchase using a debit card

Write a check

Use online bill pay

Transfer money to another account

Why is it important to review your bank statement each month?

Reviewing your bank statement each month is crucial for tracking your spending, identifying errors, and detecting fraudulent transactions. It helps you maintain accurate financial records and manage your budget effectively.