Let’s say you moved to Los Angeles to pursue your acting career. You found a roommate and share an apartment which costs $800 per month. (See Moving to LA: Cost of Renting.) You found a day job that pays 20 bucks an hour. (See Moving to LA: Cost of Living) You drive 2004 Toyota Corolla with 90,000 miles on it.
What kinds of bank accounts should you have? How many different accounts do you need? What is the best way to pay your bills?
Cash is King
There is a saying that cash is king. I’m not sure what that means because in the deep south they say cotton is king. And in Memphis they say Elvis is King. But for buying stuff cash is still king.
Here is my recommendation: use cash to pay for most of the things you buy.
Paying cash is the simplest way of to keep track of how much money you have. Just add up all the bills. Keeping track of how much money you have is called accounting. With cash, accounting is simple. If you can add and subtract, you can do cash accounting. The great thing about cash is that there is no danger of spending more than you have.
As a bonus, you often you get a discount if you pay by cash. In California, the cheapest gas stations are cash only. Save 5 or 10 cents a gallon by filling up at those gas stations. Sweet!
Checking Account
Twenty years ago Americans paid for everything by check. They used checks to pay the rent, at the supermarket to buy groceries, when shopping for appliances. Today most people use either a credit or debit cards to make purchases.
Checks are rapidly becoming obsolete in America. But one of the few things that people still pay by check is the rent. So you still need a checking account. In California I recommend opening a checking account at a big bank like Wells Fargo or Bank of America simply because they have branches everywhere. (Just walk into any branch and tell them you want to open a checking account. Bring your checkbook from your old bank account back home so you can make an inital deposit. Or you can deposit $100 or $200 cash.)
Open a Savings Account
You also need a savings account. Most banks can link a savings account to your checking account and even do automatic transfers each month to help you save. You need to build up your savings for several reasons. One is for an emergency fund. (No, a Jimmy Choo sample sale is not an emergency.) A second reason is to save up for a new car when your old car eventually wears out. A third reason to save might be for the down payment on a nice house with a white picket fence.
One of the best places to keep a savings account is at a Credit Union. Many employers have a credit union associated with them that you can join. Credit Unions are cooperative financial institutions that are owned by their members. Their main purpose is to promote thrift and provide credit at reasonable rates. Kinda like the old Bailey Building and Loan in the movie It’s A Wonderful Life, where Bert and Ernie’s savings are lent to Mr. Luigi to build his house.
Credit Card Accounts
Credit cards are the most insidious and abused form of payment ever devised. I would like to tell you not to have a credit card. Unfortunately, in America, you must have a credit card to rent a car or purchase airline tickets over the internet.
The best credit card is Discovercard because you get cash back for money that you spend. Cash back can be up to 1% and sometime they run special promotions like 5% back for all gasoline or grocery purchases this month.
You’ll also need a VISA card as a backup card just because some places still don’t take Discovercard. There is website that finds the best credit card offers. [I will try to find it and add a link to it here. I think it is bankrate.com]
Using a credit card requires a lot of discipline, something that most people do not have. So my advice to most people is to not carry your credit card around with you. Leave the plastic at home and pay cash for everything.
Four Bank Accounts
So there are your four bank accounts: one checking, one savings, a Discovercard and VISA card for backup. That’s all you need. (You might end up with two savings accounts: one at your bank and at the credit union. That’s OK. Use one for the emergency fund and one to save for a specific purpose like a new car.)
You will get offers in the mail for more credit cards. Or a store might try to get you to apply for one of their branded cards. Refuse their offers. Every application for a new credit card shows up on your credit report and can adversely impact your credit score. Just stock with one Discovercard and one VISA card, and leave them safely at home and pay with cash.
