No one carries around large amounts of cash anymore; it’s all digital and online banking has made things even easier. You simply must use these resources to plan wisely for your future.
What is banking?
Banking is a service provided by banks whereby they handle, store, protect, and use our money for the benefit of the customer, themselves, and the economy. Deposits made are used by the bank for loans. Loans get paid back with interest and, this is how the banks make their money.
This works because according to law, banks are only required to keep 10% of all deposits in the bank. This means they are allowed to loan 90% of their total capital out to those who qualify for credit. Loans are an important part of any economy and, this is how families can buy cars, houses and send their children to university without having to save for years.
Types of banking accounts
- Savings / Deposit accounts - the amount of interest earned on this account will depend on the balance of the account but there is a minimum balance required to earn any interest. Certain accounts pay a higher interest rate when no withdrawals are made for a certain period.
- Transaction / Cheque accounts - these are used for everyday transaction and they generally have a monthly fee attached to them. These accounts usually do not generate much interest because they are used to frequently.
- Term deposit accounts - these have higher interest rates than savings accounts and a minimum balance is usually required. Money deposited should be left in the account for the 'term' agreed upon and once this term is up, interest will be paid. The interest rate is fixed.
- Credit card accounts - interest rates will depend on your credit card provider but these accounts allow access to money that you do not have available. In other words, it is a short term loan that is paid back with interest but can remain interest-free for a few months.
- Foreign currency accounts - these are made available to those who receive an income in another currency but can also be used for travel purposes. Fees would be much higher as it is an international account.
- Joint accounts - these are available for spouses, business partners, and/or parents and children to keep an eye on their spending.
Types of banks & banking in Australia
- Commercial banks - providing service to businesses as well as private individuals.
- Retail banking - providing deposit, credit, and money management to families and individuals.
- Community banks - these are smaller than commercial banks as they focus on the local market to provide personalized services as well as build relationships with the consumers.
- Savings and loans - these were created to provide an affordable home-ownership plan.
- Credit unions - these are owned by customers to provide personal, low-cost services.
- Investment banking - these find funding through investors, corporations, and enterprises.
The process of planning for your future
To know where you are going in life, it is essential to plan. Things don't just happen. You must make provisions and preparations for the things that you want and need. You do this by planning for your future. Planning is to decide what you want to do, how you are going to do it, why you want to do it and who you’ll be doing it for.
These are questions you ask BEFORE you make any final decisions. It is an intellectual process and it helps with organization. It outlines out your goals as well as how you plan to get to your goals. What is the perfect way to plan for your financial future? Budgeting. This is a short-term solution but, it continues for your whole life and, you'll have long-term solutions for upcoming problems.
What is a budget?
A budget is a financial document that predicts and plans income and expenditure. It shows how future income will be used and it shows how future expenditure will be paid off.
It plans how you’re going to earn as well as spend money and, can be done by a professional or, by the individual wishing to budget their money.
When creating a budget it’s important to not only plan for foreseen expenditure but, unforeseen circumstances as well. Always have a 'rainy day' or emergency fund available.
How to budget in a nutshell
To plan properly, you need to know how to budget properly. There's no point in creating a great budget that either doesn't work or that you can’t stick to. So here are a few questions on how to properly and accurately budget.
- Collect all your financial statements and slips to see where you’re spending most of your money.
- Add up all the areas in which you are receiving an income. Document the total amount of income you receive at the end of each month.
- List all the expenses you have each month and divide them into columns of fixed expenditure (meaning the amount doesn't change from month to month) and variable expenditure (meaning the amount changes monthly).
- Do a calculation and subtract your expenditure from your monthly income.
- Review your expenses and adjust them accordingly, meaning remove any unnecessary expenditure.
- If you are spending more than you are earning, you have a problem as you are dipping into your savings each month.
The steps might be simpler than they seem but, it’s a good idea to start to managing your money properly and efficiently. Make the effort to spend wisely and to save and plan for your future.
Planning for your future can be done with just a few organizational skills. It’s better to be prepared for a situation that you’ve never experienced before than to sit in the dark if and when that situation comes about.
They say it’s better to ask for forgiveness than permission, but in this case, it is better to be prepared for the unknown than to scramble and find help. Plan financially for your future and make use of the latest banking tools.
Your important planning can be done right from the comfort of your couch and, most likely you have unnecessary expenditures that you can easily cut back on.