This week is the start of a new blog series called “back to basics”, and it was inspired by the new school year. In the first few weeks of school, teachers are trying to figure out just what their students know and remember. It can be boring for students, but it’s important to make sure that everyone has a solid grasp of the fundamentals before moving onto the next step. While I’ve written about some more complex personal finance topics during the first half of the year, I started to think that a part of my audience might need a little refresher or review of sorts. So, that’s what I am going to be writing over the next few weeks. I’m going to start with the topic of checking and savings accounts.
A savings account is meant to be a place where you put your cash that you are trying to save for future needs. You cannot access the money in your savings account with a check. Many banks do allow you to access your funds with a debit card. Often, however, you can only use that a limited number of times in a month without incurring transaction fees. When your money is in a savings account, the bank will pay you a small amount of interest every month. The interest rate is very low, so it won’t add up to a lot of extra money. As you continue to save over many years, however, it’s good to know that your cash is doing the work of earning more money for you.
Money that you need to access frequently through the month to pay your bills should go into a checking account. These accounts usually do not pay you interest on your cash balance, but they also don’t usually charge you fees for writing checks or withdrawing cash. A checking account will allow you to access your money with a debit card, electronic banking, or a paper check.
One thing you will need to research before opening a checking account is the types of fees the bank will charge. Up until 2010, just about all checking accounts were essentially free. Banks, however, incur many administrative and transaction costs associated with having you as a customer. Prior to 2010, they managed to earn enough money in overdraft fees (fees they charge you for writing checks in amounts that exceed your account balance) from checking customers to avoid charging other account fees. Due to a change in banking regulations, however, customers were allowed to opt out of overdraft protection. So, the banks came up with a variety of other ways that they could recoup their administrative costs from your account. There are monthly fees, minimum balance requirements, and direct deposit requirements on checking accounts that can add up to a lot of money over the year. So, you should definitely look at the kinds of checking account options available at banks in your area and find one that works best for you.
Online banking is also a cheaper option if you are open to not having a physical bank branch in your town. Wallet Hub publishes a comprehensive list of banks with free checking offers. Go check it out and see if there is a better deal for you.
The process of buying a home used to be governed by two separate federal regulations. The Truth in Lending Act (TILA) dealt with disclosures about the cost of borrowing. The Real Estate Settlement and Procedures Act (RESPA) determined the legal procedures and disclosure timelines associated with the actual process of getting from signing a contract between a buyer and seller and the closing meeting. In November 2013, however, the Consumer Financial Protection Bureau (CFPB) announced regulatory changes that would merge both of these prior legislations into one rule known as the TILA-RESPA Integrated Disclosure (TRID). Also known as the “Know Before You Owe” regulation, TRID went into effect on October 3, 2015. The CFPB wanted the new regulation to increase the availability of consumer information and streamline some of the real estate closing procedures.
The Closing Disclosure Form
One of the major benefits of the “Know Before You Owe” rule is that more borrowers are actually reviewing their closing documents before they get to the actual closing. Prior to the change, the HUD-1 closing forms were supposed to be done and available for borrowers to review at least 24 hours before the real estate closing. According to the rule, however, a borrower had to request to view the form. Otherwise, lenders assumed that the borrower waived the right to view the closing forms ahead of time. Many times borrowers did not know to request the closing forms, and lenders did not complete the forms until the day of closing.
According to the Know Before You Owe rule, however, lenders must provide the new Closing Disclosure form to borrowers at least three business days prior to the closing. Recent studies show that in the six months since the implementation of TRID, more buyers are taking the time to look over their closing forms prior to arriving at the closing meeting. Prior to the implementation of TRID, only about 74% of home buyers reviewed their closing documents at all. Now, around 92% of borrowers report that they are reviewing their closing documents prior to the real estate closing. This is a huge benefit to buyers who have the opportunity to closely review the breakdown of each closing expense before walking into the stressful closing meeting.
Delays and Disclosures
Lenders rather than title agents now prepare the closing documents and the Closing Disclosure form. The new form and process have caused some problems as everyone involved in the closing adjusts to the many procedural changes. Unaccustomed to the job of completing the Closing Disclosure form, lenders made mistakes completing the form that delayed closing. When the lender makes an update or correction to the Closing Disclosure form within three business days of closing, the whole timeline for closing must be reset. TRID requires that the borrower receive the entire three business days before closing to review the finalized closing documents. In addition, real estate agents report that new consent requirements hinder their ability to access and review the closing documents for their clients. Although the average time to close on a home purchase increased to around 50 days immediately after “Know Before You Owe” was implemented last year, delays created by the regulation are improving.
It was weird to see so many first day of school pictures online this morning, but kids around here go back to school this week. Every time I think about this time of the year, I feel a little sick. Not only does it mean my summer break is over, but it also reminds me of the stress and expense of that enormous shopping list. Even though our school supply list is now minimal, I thought I would share some clever ideas for school savings that I’ve discovered along the way.
- If your child wears basic uniform attire that you don’t need to purchase from a specific store, try to hold off from buying too much right now. A lot of stores are going to have uniform items on sale a couple of weeks after school starts, and you’ll be able to stock up for the rest of the year. Pick up a size larger too if your child is growing like a weed. You’ll be glad you did when you need it and have to pay full price later in the year.
- Make a list and check prices and availability across a variety of stores. Get your friends involved and share information with them. If you grab the class supply list and three friends, you can each price check one store and compare. Now you are all getting the best deals.
- Don’t forget about quality. You are not really saving money if you buy the 5 cent folders that rip to shreds after the first week of school. The same is true for polo shirts that pill or get holes. Don’t go overboard though. My son used to manage to get holes in the knees of pants even though I got him the good Lands End pants with iron knees. Eventually, I just made him wear shorts. Also, I decided not to spend $35 on those pants when he tore them up at the same rate as a less expensive pair.
- Look for coupon savings available through apps like Ibotta or Target Cartwheel in addition to the store’s advertised sales.
- Reduce, Reuse, Recycle. If last year’s clothes, shoes, or gear still fits, God bless you. Make use of those things at the start of school and look into getting something new when back-to-school goes on sale. A new backpack also makes a good birthday or Christmas gift.
Bonus Savings Tip: Stay at home. I used to dread back-to-school time. New backpacks, uniforms, sneakers, lunch boxes, loads of expensive school supplies, deposits on back-to-school activities, soccer shoes, tap shoes, ballet shoes, jazz shoes, soccer uniforms, and leotards. Back-to-school could easily run over $1000 for two kids. Plus, the stress of needing to find that exact pencil case or risk being chastised by the teacher. None of that. We are starting our homeschool year next week, and back-to-school has cost me less than $50. I buy things through the year when they are on sale, find a lot of free material online, and choose products that we can use for a long time. I’ve learned to be a lot more efficient over time. I’m not really suggesting that you homeschool just to save money, but it is just one of the many benefits.