Transaction Accounts

“When I was young I thought money was the most important thing in life, now that I'm old - I know it is!”

― Oscar Wilde


Transaction Accounts (a.k.a. Everyday accounts)

This post will deal with transaction accounts.  Just as a professional requires their tools of trade, so does someone seeking to control their finances requires the best transaction account for their needs.
The transaction account is your main go-to account. It's where most likely your salary is being paid into, your bills paid out of and the one you withdraw cash from.

Note: don't use the transaction account to save your money. Just don't. The interest you get on transaction accounts is usually 0.01%, or in some cases up to 3%, but you may lose other features (eg bankwest hero account losing the ability to withdraw at some ATMs).

With so many choices out there, it can be hard to make a decision on which ones are worthy of your wallet space.

I have accumulated several transaction accounts during my time mainly because the banks were offering money incentives to open the accounts. (6 currently open, and one closed).

Accounts that have fees but can be waived if you deposit money
ANZ / Commonwealth Bank / Westpac
I've group these 3 together because they are quite similar.
Deposit $2000 a month into their everyday transaction accounts and they will waive their monthly fee.
Each has extensive branches over the country as well as many ATMs.
They limit their ATM fee free withdrawals to their own ATMs though, so will charge fees if you withdraw from any other bank ATM.

CBA has the best technology behind their banking. Being Australia's biggest bank means they can deploy much more resources and money into improving their IT systems - their real time processing of banking functions along with their un-rivalled mobile app experience makes it the best of the Big 4 banks in my opinion.
ANZ would come a close second, their goMoney application is also very good and user friendly. My offset account, my credit card and home loan are all easily viewable with their app.

Bankwest - fee free from any ATM from a major bank (Westpac, CBA / Bankwest, ANZ, NAB)

Accounts with no monthly account keeping fees
NAB
No monthly deposit requirements, the only one from a major bank, which is very commendable. Really good if you regularly need branch access to do your banking. Great online interface and mobile application. Some of their branches have coin counting machines, which is very handy when you need to deposit your jar of loose change! Free to use and deposit for NAB customers.

ME Bank / Suncorp / HSBC
These bank accounts do not have any monthly deposit requirements, but due to their limited ATM locations, I cannot recommend them for your main transaction account. They are good if you have other products with those banks or mainly only do banking online and have no need for ATMs. From time to time each bank has a promo to incentivise you to create an account with them ranging from $50 to $100.

ING Direct (Orange Everyday)
http://ingdirect.com.au/everyday/orangeeveryday.htm
One of the best transaction accounts in Australia, if not THE best. Just so much to love.
- No deposit requirements
- no fees if you take out $200 or more from any ATM
- Get 5% cash back on contactless purchases under $100 for 6 months, then 2% cash back if you put $2000/month. (this alone should be enough reason - imagine saving 5% on maccas, woolies, coles, pretty much anywhere where you can do paypass payments).
- 50 cents rebate if you do cash out $200 or more from retail outlets
- Great online user interface and amazing mobile application to manage your money
- Can link to ING Direct Savings Maximiser, one of the more competitive online savings accounts.
From time to time, ING Direct will offer their new customers and also existing customers cash bonuses for referring friends or opening accounts. I have received close to $400 from varying promotions ING Direct has offered over the last few years.

Citibank Plus account
http://www.citibank.com.au/aus/banking/everyday_banking/citibank_plus.htm
Best account if you need to travel often and have ready access to cash via overseas ATMs.
- free overseas ATM withdrawals (as far as I'm aware, the only card in Australia to allow this, used be able to use 28 degrees credit card surplus trick, but that loophole is being closed from 1 Jan 2014)
- free ATM withdrawals at Citibank, St George Bank, Westpac, Bank SA and Bank of Melbourne
- their online banking interface isn't as polished or good as the other major banks
- currently $120 cash bonus when depositing $3000 a month for a year. See http://www.ozbargain.com.au/node/113317

Obviously, a transaction account that is best suited for one person, may not be the best fit for another person. If you have a mortgage, it makes much more sense to have your pay and other direct credits paid into the offset account so as to maximise any savings to interest.

You should constantly review the best deals going around and check that you have the best set-up possible so as to have the right tools to control your finances.

Smarter with Money 101

"The best time to plant a tree is 20 years ago. The second best time is now" 

- Chinese Proverb

This post will be a general overview of the foundation needed to building up your wealth if you are just starting out. I believe the elements to building up a person's net worth involves the following 3 steps in the diagram.

Allow me to elaborate:

1. Savings and investments
In order to actually build up any savings, we all know to save a portion of our income for a rainy day. The most optimal savings strategy occurs when you receive your payslip and allocate a portion of it to savings before you use it for any other purpose - aka paying yourself. Set aside at least 10%  (more if you can afford it) of your after tax pay just for future savings. Why not play a game where you try to beat the previous month's savings and save just that little bit more. See how much you can save without actually starving or losing the roof over your head.

It's a psychological thing - if you pay all your other expenses first, and then promise to save what is left; chances are you will go over your budget and end up saving very little. If however you pay yourself first, you are setting yourself a limit and you have to find a way to adjust and workaround the lower after tax income.

Saving for something is easier if you have a goal in mind and a plan on how to get there.

Compare the following 2 statements:
"I want to save more money this year" or "In 4 years, I will need $75k in savings for a deposit on a unit".

The second statement gives you a target to work towards, and you know that you will need at least $18.75k each year or ($1562.50/month) saved up. Having a purpose for saving provides you with more motivation than just saving for the sake of saving and being a responsible adult.

The good thing about saving is that the hardest part is at the start, and then it gets progressively easier as you continue to save. 

The reason - compound interest and development of saving habits. We all know in simple terms how compound interest works. Your savings earns interest, then next year you earn interest again, but also interest on your interest. Leave it for long enough and sure enough you have a huge pile of money on your hands. The trick is to start as early as possible and let the compounding do its magic.

If you put $10 a week into a savings account for 30 years, with a rate of return of just 3% compounded monthly, you will end up with $25,252 after 30 years. So the true cost of your weekly coffee runs is costing you over $25k over 30 years (or $43k if you can get 6% interest). Let me repeat. $10 a week.

From ASIC's Money Smart website: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-tools/compound-interest-calculator

There are multiple ways to build up savings - and the end goal is generally for you to have enough savings so that you can then buy investments with your savings (that and to afford to go on holidays). These investments will then provide you with income that you don't have to work for but still receive ('passive income').
Some ways people build up their savings:

• online savings account 
• term deposits
• managed funds
• shares
• property
• super 

A discussion of the various ways to build up a savings nest egg will be described in future posts.

2. Reducing expenses and debt
Once you have reached your limit of how much you can save on your current pay / sources of income, there are 2 options available to increase savings further. Either to reduce your expenses or find a way to increase income.
The easier option is obviously to reduce expenses. Anything that you can cut down on is money saved and also money earned. Cut out any non essential recurring expenses. Keep in mind the effect of compounding over a long period of time, even for small amounts like $10 a week.

• Gym membership $50/month 
• Bringing lunch from home each weekday  - $50/week
• Cable internet $30/month 
• Quarterly train tickets vs weekly tickets - $25/month saving

When I say reducing debt, I need to clarify one thing. I'm not saying debt is bad. No, you'll notice all the top listed companies use debt to their advantage. What should be avoided is getting into debt that does not fund an investment. Debt is only good if you use it to purchase assets that will generate further income.

• Mortgage on house - okay, as your house can be sold for capital gains and also rented for income
• Higher education loans (HECS) - okay as it will increase your employability in jobs that pay more
• Credit card debt or personal loans - definitely a bad idea. Only get a credit card if you know you can pay it off in full and not pay any interest.

When dealing with debts, the magic of compound interest still applies, the earlier you can pay off the loan, the more you will end up saving in the long run. Don't let your bank/creditor have the full enjoyment of compound interest. Pay it back asap.

3. Managing cash flow
Cash flow is managing the timing of the inflows and outflows of your personal finances. It can depend on tax considerations (eg when to sell a share) or it can depend on when you get paid and when bills are due.
In this regard, credit cards with up to 55 days interest free is a good idea if you can pay it off in full each month. What you would do is take advantage of the up to 55 days interest free and purchase your necessary goods such as quarterly train ticket or groceries, and leave your money sitting in your savings account or offset account for as long as possible.

Later on when you do have a multitude of investments and outgoings, you will have to recognise which debt is (a) the highest interest rate and/or (b) which are tax deductible. You will obviously want to use the income you get to pay off the highest interest rate which is not tax deductible (main house you live in or 'Principle place of residence' PPOR). More on this later.

Once you start saving more from reducing expenses and increasing income, it just snowballs from there.

Hello World

This is my first ever post of my first ever blog. So here goes.

In the past I've always just posted tidbits of information and general observations on Facebook or emails.

The aim of this blog is to increase financial awareness and share the knowledge that I have acquired from my keen interest in all things money and finance related. This blog will also serve as a helpful reminder of my journey to financial freedom that I've always dreamed of (enough passive income that I could retire at 40 if I wanted to).

Most of the finance specific topics will be Australian centric, but topics on saving habits and theory can be universal.

A little about myself:
Mid 20s
Bachelor of Commerce/Bachelor of Economics (with distinction)
Generally quite frugal
One weakness is technology gadgets and computer stuff that I splurge on from time to time
Enjoys reading and keeping up to date with the news
Love the thrill of the share market and tracking my financial progress
Preacher of good money habits
Always searching for that next bargain or deal

If you're still reading at this point : wow props to you for your perseverance. You will go far I can tell.

I will aim to post at least twice a week, and respond to any comments or questions people might have.

I hope you do enjoy your time with me and that you find some of the information helpful in your own journey to financial happiness.