The concept of “paying yourself first” is one of the pillars of personal finance and considered the golden rule by many financial planners. The basic idea is simple to understand. As soon as you get paid, put money into your savings account first. Before you pay your bills or buy groceries, set aside a portion of your income to save. Thinking of personal savings as the first bill you must pay each month can really help you build tremendous wealth over time. By starting with a small amount like $100 each payday and using automatic payroll deductions, after a few months, you probably won’t even notice the withdrawal. You might even find you can increase the amount.

There are plenty of benefits from choosing to “pay yourself first” and prioritizing savings. First, there’s the obvious one about building a huge savings balance. Regular steady contributions are an excellent way to build a large nest egg. That’s money you can use in case of emergencies, to purchase a home or save for retirement via a 401(K). Paying yourself first is also an excellent way to pay for planned larger purchases. Do you need new tires for your car in six months? By paying yourself first, you’re almost guaranteed to make sure that money is there when you need it. There’s no scrambling at the last minute.

Then there is the psychological aspect. Building savings is a powerful motivator and there are plenty of mental benefits to seeing your savings balance grow and grow. When you prioritize savings, you’re telling yourself that your future is the most important thing to you, not the cable company. While money may not buy happiness, it can provide piece of mind. People with fat emergency funds tend to have fewer emergencies than those with lower or zero balances.

Finally, paying yourself first encourages sound fiscal habits. By moving savings to the front of the line ahead of spending, you have a better grasp on the role of opportunity costs and how they affect your choices. By automatically deducting a portion of your income, you’re able to set the money aside before you rationalize ways to spend it.

The bottom line is “paying yourself first” truly is the golden rule of personal finance. By using the technique, you can truly benefit over the long run.

Most banks offer both money market accounts and savings accounts for depositors, although money market accounts are less universal. At first glance, these two accounts are remarkably similar – both are interest-paying, both have some liquidity limits and both are protected by the Federal Deposit Insurance Corporation (FDIC). However, most money market accounts tend to pay a slightly higher interest rate, which can make them more attractive for savers.

Financial institutions are very limited in what they can do with funds that are placed into a savings account, but they do have a little more flexibility when it comes to money market accounts. For example, they are allowed to invest money market account money into certificates of deposit (CDs) or government bonds (or other safe investments). This leads most institutions to offer higher interest rates on money market accounts to attract money away from savings accounts.

The differences between a money market account and a savings account are generally not very significant. Savers who have a history of withdrawing funds from their savings accounts on a regular basis might want to stay away from money markets, as most have larger restrictions on how often withdrawals can be made. Some may even have a waiting period (up to a week) on receiving money.

In the end, depositors end up choosing a money market account because it offers a higher interest rate than their bank’s savings account. While it might mean the difference between earning 1% rather than 0.5%, that might be enough to offset the liquidity constraints if the depositors are unlikely to need quick access to their cash.

Do not confuse money market deposit accounts with money market funds. Money market funds are not covered by the FDIC and do not act like traditional demand deposit accounts.

Netspend lets cardholders overdraw their accounts, but only if they previously enrolled in the overdraft protection service. Otherwise, Netspend does not authorize and pay on overdrafts.

Netspend cards are prepaid debit cards that allow cardholders to make purchases worldwide using the pre-funded money deposited into their accounts.

Netspend’s Overdraft Protection Service

Netspend offers a free purchase cushion or overdraft buffer of $10, which will not charge the cardholder the typical overdraft charge of $15. The cardholder has a grace period of 24 hours to repay the negative balance before incurring such a charge. For overdraft amounts over $10, the cardholder would incur a charge of $15, with a maximum number of three fees in a calendar month.

This does not mean that Netspend will authorize every overdraft. Netspend’s terms and conditions indicate that the company only pays overdrafts at its own discretion and does not guarantee payment of every overdraft transaction. Unauthorized overdraft transactions are declined, and Netspend may charge fees for these declined transactions.

Enrolling in the Overdraft Protection Service

Enroll in Netspend’s overdraft protection service through your online access account or by calling Netspend directly.

To enroll in the overdraft protection, you must receive direct deposits totaling at least $400 into your account within 35 days. You must also read Netspend’s terms and conditions and agree to the electronic delivery of required disclosures.

You also have to have a valid email address so that Netspend can notify you of any changes to the program. Netspend activates your overdraft protection within 24 hours after you have completed all of the appropriate steps.

When buying a car, it may be better to have a down payment rather than a trade-in. A trade-in offers convenience to the car buyer, since one can walk into a dealership with a used vehicle and walk out – or rather, drive out – with a brand-new automobile. But this convenience comes at a significant cost, since most buyers are likely to leave cash on the table by receiving less for their trade-in than what it is worth. The dealer is especially likely to offer a low price if the trade-in is from a car manufacturer that is different from the one the dealership represents.

The preferred course of action would be to sell the car privately before buying a replacement vehicle and using the sale proceeds as a down payment. But arranging for a private sale can be a time-consuming and cumbersome process involving a number of steps. These include:

1. Ensuring that the vehicle is sale-worthy
2. Advertising the sale
3. Making the car available for test drives
4. Actually getting the money once the car is sold

The timing also has to be near-perfect in a private sale, in order to avoid being without an automobile for an inordinately long time.

Regardless of whether the old car is being traded in or sold privately, the seller should have a good idea of what the vehicle is actually worth before coming up with a price for it. Over-inflated expectations of the value of the car may result in reasonable offers being turned down, while inaccurately low estimates will hurt the seller’s pocketbook. A number of online sites provide estimates for both trade-ins and private sales.

The Bottom Line

When comparing a trade-in to a private sale, it boils down to how much the convenience factor is worth. Receiving a couple hundred dollars less for a trade-in, as opposed to a private sale, may be well worth the hassle involved in the latter, for most people.

In the end, it may be best to arrange a down payment rather than a trade-in when buying a car. But if that is not possible and a trade-in is the only option, do your research beforehand to obtain an estimate of the value of your vehicle. A few hours of research can save you hundreds – if not thousands – of dollars, by fetching you a better price for your trade-in than a dealer’s low-ball offer.

If you have ever looked over a company’s balance sheet, you have no doubt noticed the first account under the current asset section is cash and cash equivalents. The cash account contains, as the name suggests, all of the company’s cash, while the cash equivalents account represents highly liquid investments the company can convert to cash within a few days. The cash that is listed as such on the company’s books will be stored in a bank account, or within an equivalent financial institution, from which the company is then able to pay its liabilities and other expenses.

The company may also keep a small amount of cash in its office for smaller office-related expenses. These small amounts of cash kept on premises for day-to-day use is called petty cash, and would also be recorded in the cash account on the balance sheet.

The cash equivalents that a company may carry on its books are short-term investments that are highly liquid. The cash equivalents are considered to be just like cash simply because they can be quickly liquidated and converted into cash at a fair price within a matter of days.

Other Ways to Stash Cash

A company’s cash equivalents account contains any and all short-term investments that are able to be sold at a reasonable price to provide needed cash within a short turnaround time. So, if a company wants to use some of its cash equivalents in order to pay some of its bills, it has the option of selling some of its cash equivalents and using the proceeds to achieve this goal. Examples of cash equivalents include money market accounts and Treasury bills, also called T-bills.

A money market account is very similar to a bank account, but the interest that a company can earn on this account is slightly higher. There may be some restrictions imposed on the firm for using a money market account, such as a maximum number of transactions within the account during a specified period, or even minimum deposit requirements.

Treasury bills can also provide the company with another alternative to keeping cash a regular bank account. T-bills are government debt issues that are sold at periodic intervals. As T-bills can be resold within a public market at any time by the company, they are highly liquid, which allows them to also be classified as cash equivalents. (See also: Introduction toFundamental Analysis.)

The interest rates for federal student loans from the U.S. Department of Education are set by Congress through legislation. The interest rates are closely tied to the financial markets, and are usually similar to the rate of the 10-year Treasury note plus an additional amount. A borrower’s student loan servicer has no authority over the rate of the loan and cannot change it over the loan’s lifetime. Further, the interest a borrower pays on the loan is deposited into the U.S. Treasury. Most federal student loans have fixed rates for the lifetime of the loan, though some variable-rate loans do exist. With these loans, the interest rate is typically adjusted annually.

Private student loan lenders, such as Sallie Mae, Wells Fargo or Discover, are allowed to set their own interest rates. The amount they charge is based off of the federal student loan rates, the credit history of the borrower and the credit history of the loan’s co-signer.

Federal Student Loan Rates

The magnitude of the federal student loan interest rate varies depending on who is borrowing the money. Undergraduate students are charged the least, and graduate and professional students are charged more. The loans with the highest rates are charged to parents taking out PLUS loans for their children, regardless of whether the child is an undergraduate or graduate student. For example, in 2017, the rate for undergraduate loans is 3.76% and the rate for graduate loans is 5.31%. Parents taking out a PLUS loan face an interest rate of 6.31%.

A true financial horror story began on Halloween in 1978. On that date, the Supreme Court began hearing Marquette National Bank vs. First of Omaha Corp. The case appeared to be a simple conflict over which state laws govern the relationship between debtor or creditor – the state where the creditor is based, the state where the debtor lives or the state that decides to grant the loan.

Marquette was a Minnesotacredit card issuer that followed the state cap of 12%, but charged annual fees as a tradeoff. An out-of-state issuer, First of Omaha, followed the looser laws of its state and offered cards charging 18% with no annual fees. The lack of annual fees attracted more customers and cut into Marquette’s business. The Supreme Court ruled that the relevant laws are those of the state in which the lending decision was made. This meant a bank could open a credit division in a state with friendly usury laws and run all of its lending operations through that division in order to avoid tougher usury laws in either its own state or that of the debtor.

Initially, the drive to find friendly states was fueled by high inflation. Many credit card companies were capped below a 15% interest rate by state laws at a time when the inflation rate was as high as 20%. This meant many of the credit card companies were better off not lending at all, if they could not raise rates to keep up with inflation. The solution was offered by down-and-out states like South Dakota and Delaware.

When Citibank ran up against New York usury laws and it became clear that the state would not budge, Citibank cut a deal with South Dakota. South Dakota was in the economic doldrums and eagerly agreed to alter its usury laws to bring Citibank’s credit arm and its thousands of jobs into the state. Other states have changed their laws to attract credit companies into relocating and the trend has continued – to the great advantage of credit card companies. Although inflation has dropped sharply since the stagflation period in the 1970s, many of the relocated credit card companies have kept their interest rates very high simply because they can.

(For more on this topic, read Cut Credit Card Bills by Negotiating a Lower APR and Understanding Credit Card Interest.)

This question was answered by Andrew Beattie.

Airplane tickets are generally nonrefundable, because the majority of tickets sold are discount tickets. In exchange for discounts of 60 to 80% off the cost of a full-fare ticket, airlines make tickets nonrefundable and nontransferable. They do this to have greater predictability of customer loads and stability of income. Airlines also use it as a way to generate additional ticket fee income.

Reasoning Behind Change Fees

Airlines work on thin profit margins. The process of filling a flight requires a complex computer algorithm that makes adjustments to ticket prices and flight logistics as each reservation is booked. Any change to a reservation adds costs the airlines have not built into the discount ticket price so they charge a change fee. The typical ticket change fee ranges from $100 to $150.

The airline’s actual cost of making changes to a reservation is less than $100 to $150. These ticket fees, along with baggage fees, are a major profit center for airlines. According to the Department of Transportation, airlines charged a total of $2.98 billion in reservation cancellation/change fees in 2014. The three largest airlines, Delta, United and American, each billed over $800 million in change fees.

Airlines also make money from new tickets. If the new flight has a higher fare than the old flight, the customer has to pay the difference in addition to the change fee. If the new flight has a lower fare than the previous flight, the airline keeps the difference. There is no reason for airlines to offer easily refundable tickets because they are making solid profits from the current system.

Most brokerage firms are owned by banks because this allows the banks to act as both brokers and dealers, and they have more resources at their disposal to weather market fluctuations. When banks execute transactions for an individual client, they are considered brokers. However, if they make trades on behalf of the bank as an entity, then they are considered dealers. Being able to act as both a broker and a dealer allows them more opportunities to profit.

Big banks generally have more money readily available than a standalone brokerage company, and they can sustain the big blows that comes with dips in the market. Independently owned brokerage firms tend to make more profit during boom times, but they also suffer greater losses during bear markets. So while investors may see more a more significant return on their money by going through an independent brokerage firm, working through a bank-owned firm actually provides more long-term security.

Another key difference between these two types of traders is that brokers are required to report the amount of commission they earn off of each trade. Dealers, on the other hand, can increase or decrease the amount of a security transaction without having to reveal the actual markup. Essentially, brokers simply facilitate sales and earn a commission for their work. They act as a middleman who matches up buyers with products and has nothing to do with pricing.

After the Great Recession that began in 2007, there was a backlash against bank-owned brokerage firms, because many had participated in predatory lending practices that focused on creating profits and not necessarily on benefiting their clients. As these unethical strategies came to light, many customers lost confidence in big banks. Many brokers also began to transition to independent brokerage firms in order to try to distance themselves from these events and earn back the trust of the public.

The Great Recession proved that even though large banks seemed to offer added security based simply on sheer size and resources, they were still capable of failing. Prior to the economic downturn, many pundits had described these institutions as “too big to fail,” but their assumptions proved to be false during the mortgage crisis. The U.S. government stepped in and bailed out many of these companies by providing them with hefty loans. In addition, the government implemented new regulations in order to prevent these types of events from recurring and rebuild consumer confidence so that people would continue to invest through them.

Those looking to minimize risk in their investments should consider working with a bank-owned brokerage firm. However, there are concrete benefits associated with using independent brokers. In many cases, banks are the ones that benefit most from owning brokerage firms, not necessarily the clients.

Emergency funds serve as a safety net where one can afford to pay for living necessities that cannot be obtained through current income sources. It is advisable to place emergency funds in a fairly liquid interest earning investment option. In other words, in the case of an emergency, you should be able to access the fund quickly and inexpensively. This means that you want to pick investment options that do not charge high fees or have inexpensive “early withdrawal” fees. This rules out long-term investment options (because of the time period) or mutual funds (because of the fees and risk involved). The most popular options for emergency funds are savings accounts and short-term certificates of deposit.

For tips on how to build an emergency fund please read Build Yourself An Emergency Fund.

This question was answered by Chizoba Morah.