Making Purchases and Using Your Money

Ways to use your money

Just like there are several ways to get money, there are lots of ways you can use your money:

• You can use a debit card that takes money out of your deposit account for each purchase you make.
  • If you’re making a payment in person, you hand the person your physical debit card.
  • If you make the purchase online, you enter your debit card information. Just make sure the website is secure.
• You can take money out of your accounts as physical cash and pay for things in cash.
  • For instance, you can withdraw money from a deposit account at an ATM.
• You can transfer money to someone else’s account to pay them, such as paying for things through deposit accounts like Venmo, Zelle, or Apple Pay.
• You can set up AutoPay to pay things like bills. Money is taken out of your deposit account each month on a set day.
• You can write a check, where you summarize the money you want to give someone on a paper check (again, these are very rare these days).

Paying money to spend your money

Just like you sometimes need to pay fees and taxes when you make money and keep your money, you may also have to pay to spend your money.

Taxes

Not only do you pay income taxes when you make money, but you may also pay sales tax when you spend your money.

The sales tax you pay on purchases will be different depending on where you are. Different states and cities have different sales tax rates. Some states have no sales tax at all. Others have a higher rate.

Fees

There can also be fees that apply when you spend money in certain ways. For example, if you pay some bills online, they may charge you a fee for using your debit card instead of paying by “echeck”.

A very common fee that can happen when you spend money is an overdraft fee. This fee happens when you spend money that you don’t have funds to cover in your deposit account. For example, you have $5 in your deposit account, but you use your debit card to buy an item for $20. The account balance will become a negative number—in other words, your account balance will be less than zero.

When this happens the bank will apply overdraft fee, dropping your balance even lower. Then you have to deposit funds just to dig out of that whole

Another fee that’s like an overdraft fee is a nonsufficient funds (NSF) fee. This fee happens also happens when you attempt to spend money that you don’t have in your account. But in this case, the transaction won’t go through. Instead, the bank applies an NSF fee.

Smart Money Tip: Avoid overdrafts and NSF!

Overdraft and NSF fees can get really expensive. The average bank charges around $35 for each overdraft or NSF fee. Remember, your account is already lacking funds, so this can drop your balance into a big hole. And it can be very difficult to get out of it.