Chapter 1
The Basics

1.1 How to Open a Checking Account

Checking accounts are a (near) necessity if you want to participate in the financial system—they provide you with a place to receive direct deposits, make payments, and transfer money to your investment accounts.

Essential Terminology

• Checking Account: A type of bank account that lets you deposit money and make payments. Checking accounts can be opened with both banks and credit unions. It provides you with tools like checks and debit cards to pay for purchases, while the bank keeps a record of your transactions—also known as a bank account or spending account.
• Bank: A for‐profit financial institution that helps people keep their money safe and provides services to manage their finances. It allows you to deposit and store your money into various types of accounts, like checking and savings accounts.
• Credit Union: A not‐for‐profit financial institution that provides many of the same services as a bank but limits membership to a specific community (residents of a certain state, for example) or organization (charity, employer, etc.). Credit unions often provide better interest rates and lower fees because they prioritize the needs of their members over making profits.
• FDIC Insurance: A government protection that insures up to $250,000 of your cash (or $500,000 if married) per account in the event of your bank's failure. NCUA Insurance is the government protection equivalent for credit unions.

Ingredient List

Required:

• Personal identification (such as a driver's license or passport)
• Social Security number or ITIN
• Proof of address (utility bill, rental agreement, etc.)

Optional:

• Computer or smartphone (or you could travel to a local bank/credit union and open your account in person)

Recipe

1. Research and choose a bank or credit union to open your account with. In general, banks may offer more services but charge more fees/offer lower interest rates on savings balances than credit unions, and typically have a larger national presence. No matter the institution, I'd recommend finding a checking account that:
   1. Doesn't have a minimum balance requirement.
   2. Doesn't have monthly maintenance fees.
   3. Has an intuitive mobile app (mobile check depositing is also a huge plus).
   4. Has strong reviews for customer service.
   5. Is FDIC insured—this is a requirement.
2. Visit the website of the bank/credit union you chose (bank websites will end with “.com,” while credit union websites will end with “.org”) and find their online application.
3. Enter the necessary information (often: name, birthday, Social Security number/ITIN, address, phone number, email address, and citizenship status) and upload scans of necessary documents, like a driver's license (not always required).
4. Submit and wait for your application to be approved.
5. Make your initial deposit, and set up direct deposit (if you have a job).

Recap

1. Research and choose which bank/credit union you want to open a checking account with.
2. Complete their online application.
3. Fund your account and ensure you set up direct deposit so your paychecks are automatically sent to your checking account.

1.2 How to Open a High‐Yield Savings Account

Wow, I’m so excited that my savings account pays me 0.02% in interest per year!

—said nobody, ever

The average savings account in the USA pays just a 0.40% interes rate as of June 2023. This means, for every $1,000 in your account, you'd earn a whopping $4 in interest per year. High‐yield savings accounts (HYSAs), as their name suggests, offer a much higher interest rate than that. How much higher? That depends on a number of factors (most notably the Federal Funds Rate), but as of today, a typical HYSA is offering more than ten times more interest than a “normal” savings account. They can afford to offer much higher rates (while receiving the same protections as normal savings accounts) because a majority of HYSAs are offered by online banks: so instead of using their earnings to pay for fancy buildings and thousands of staff, they can instead direct these earnings back to their customers in the form of higher interest rates.

Essential Terminology

• High‐Yield Savings Account (HYSA): A special type of savings account that pays you a much higher interest than a “regular” savings account. They are typically offered by online‐only banks and come with the same security and protections as “regular” savings accounts. However, these interest rates aren't permanent (neither are “regular” savings account interest rates) and fluctuate depending on a number of factors.
• FDIC Insurance: A government protection that insures up to $250,000 of your cash (or $500,000 if married) per account in the event of your bank's failure. NCUA Insurance is the government protection equivalent for credit unions.

Ingredient List

Required:

• Computer or smartphone
• Bank account
• Social Security number
• Personal identification (such as a driver's license or passport)
• Proof of address (utility bill, rental agreement, etc.)

Recipe

1. Research and choose a bank to open your HYSA with. You can find my favorite HYSA providers at nicktalksmoney.com/HYSA. Factors to consider when opening an account are:
   1. Interest rate—is it competitive with other HYSA providers?
   2. Fees—avoid accounts with maintenance fees, minimum balance fees, or transfer fees.
   3. Accessibility—if needed, how quickly can you withdraw your money?
   4. FDIC Insurance—this is a requirement.
2. Complete the online application with all necessary information (often: name, birthday, Social Security number/ITIN, address, phone number, email address, and citizenship status) and upload scans of necessary documents, like a driver's license (not always required).
3. Submit and wait for your application to be approved.
4. Make your initial deposit, and turn on recurring deposits if you want to automatically deposit money into this account every month.

Recap

1. Choose an HYSA provider covered by FDIC Insurance.
2. Submit an online application.
3. Once you're approved, make an initial deposit and use it to build an emergency fund.

1.3 How to Build an Emergency Fund

If an unexpected car repair racked up a bill of $1,000, would you be able to cover this without accruing credit card debt? Statistics suggest that 57% of Americans would answer “no” to this question, which is why building an emergency fund (preferably held in a high‐yield savings account) is so important. This is the foundation of your personal finances and should be built before attempting to grow your money through investing.

Essential Terminology

• Emergency Fund: A sum of cash set aside for unexpected financial needs or emergencies, like medical expenses or car repairs. It provides a safety net, allowing you to handle unforeseen circumstances without having to borrow money or rely on credit cards. The general recommendation is to have between three and six months' worth of necessary expenses held in your emergency fund.
• High‐Yield Savings Account (HYSA): A special type of savings account that pays you a much higher interest than a “regular” savings account. They are typically offered by online‐only banks and come with the same security and protections as “regular” savings accounts. However, these interest rates aren't permanent (neither are “regular” savings account interest rates) and fluctuate depending on a number of factors. See page 3 for the HYSA recipe.

Ingredient List

Required:

• Savings account (preferably high‐yield)
• Savings goal

Recipe

1. Set a savings goal: The general guidance is to have an amount equal to three to six months' worth of necessary expenses set aside in your emergency fund. This means, if your baseline expenses (rent, bare minimum groceries, etc.) cost $1,000 per month, you'd want to save between $3,000 and $6,000 in your emergency fund. If you have a stable income and don't own many assets...