Keep It Simple Stupid
This is a phrase that can relate to many aspects of life and business, but for my purposes, and the purposes of reaching out to young adults fresh out of school, in school, or people of any age, I am going to talk about banking.
Its a 5 Step Process....
1)Primary Checking - Everything is deposited into this account, then from this account you determine where it is going to go to...I suggest go to your local bank and get a totally free checking account, no minimums, no fees, no interest earning (the amount of interest earned on this account will be so minimal it wont matter anyways). But this is your first layer of banking, you'll want a brick and mortar bank that you can go to the branches and deposit anything from pay checks, to loose change. Anyways, in summation, any money you earn goes right into this account.
2) ST Savings - This can be at the brick and mortar bank too if you want, this is more for peace of mind, when you do your monthly or weekly budget you should be putting away the money you need into this account. So pretty much, if you know that your cell phone bill will be $80, each week you get paid, transfer $20 into this account so that at the end of the month when its due that money is already there for you. Also, another example...if your car payment is $200 a month, you know every week to put $50 into that savings account so that at the end of the month you have the money put to the side for the payment.
3) LT Savings - Open this account at an online bank because they pay much better interest rates, and the goal would be to get the dollar value in this account high. Once you know your fixed expenses, and you know how much you want to spend, you then will transfer the rest (I prefer to budget for savings, so that its not "whatever is left over", savings should be a fixed expenses! Anyways, this is money that you want to save for big ticket items, or just to put away for a long period of time and you do not plan on spending it(new car, 3-6 month buffer for a worst case scenario, new TV). I recommend using ING Direct, I know that their are other ones out there, but I like ING because you can set up as many sub accounts as you would like and have it all under one log in number. You could have an account for each big ticket item that you want, or each event you are saving for, this way the money is already earmarked for something.
4) Brokerage Account - This is for money that you wont need for any of the circumstances shown above. Again, I prefer to budget for this, so I would want you to work this into your budget of how much money you want to go into this account each month. But all in all this account if for money that you wont be needing. Here you can go ahead and purchase stocks (if your young, you should be purchasing stocks), index funds, ETF's, or mutual funds.
5) IRA - This should be the final stage of your financial situations. A retirement account...this also should be budgeted for, exactly how much money you want to put into here each month. Roth IRA's are probably the most popular to open for a young person, but an Individual IRA may be one you want to open too (posts regarding the IRA types to come later). This account is tax free, whatever dividends you earn from investing in here (its just like a brokerage account) are not taxable at the time. If you sell a stock and make a $5000 gain, it is not taxable in that year. Adversely, if you lose $5000 on an investment, you cant write it off as you normally capital losses. Again, I will post more details regarding the retirement accounts and the options you have soon, that will make more sense of those rules and the tax consequences behind IRAs.
If you keep it simple like above, and make sure all the money moves from 1 to 5, and not in any other direction (except 2 to 1, to pay off the large expenses you were putting money away for) you will be on the road to be financially fit. Too many bank accounts at different banks, can cause you to forget about them, and start accruing bank fees, one bank fee can wipe out a good amount of your interest earned for the year.