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The importance of regular tracking

Regular tracking of your bank account helps you understand the flow of your money, including Automated Clearing House (ACH) transactions, pending transactions, and the balance of debits and credits. This knowledge is crucial for financial health, allowing you to spot unauthorized transactions quickly, manage your budget more effectively, and avoid overdraft fees. Created by Sal Khan.

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Video transcript

- [Lecturer] So your bank account and you might have more than one, is really where a lot of your financial life is happening. So it's important to keep track of it and we're gonna talk more about that in this video. I'd recommend looking at the transactions in, say your checking account, wherever you're doing most of your transactions from at least once a week. And you need to do this, one, just to make sure that you have enough money in your bank account, that you're not about to overdraft and then have to pay overdraft fees, that you are maintaining minimum balances. Because once you go below minimum balances, you might have to pay maintenance fees. So you wanna avoid those types of unnecessary fees. And you also wanna look at this to see are there any trends? Are you saving money? Or is your balance going down over time? Is there anything you can do about it? And maybe, I don't wanna say most importantly, but this is something you have to worry about unfortunately more and more these days, is to make sure that there's no fraud going on. That there's no, someone not taking a few dollars out of your account every month for something that you didn't sign up for or maybe something that you thought you canceled, but they're still taking that money out. So this right over here is an example of what you might see if you were to log in online to your banking account. And on the left side here you can see your balance and starting with February 1st, all the way going to the end of the month. This looks like a leap year here. And we can see how the balance is changing over the course of the month. And so, the first thing I would see is, well, the good news is it looks like the balance is generally increasing. Now that doesn't mean that this person is necessarily saving. They might have had a few things go their way this month or maybe they didn't have to make some payments this month that they have to make more regularly. But starting at $600 and then ending at 947, it looks like there's an upper trend. Now what explains how this balance changes is our, what we would call the debits and credits over here. So when the money is taken out of your bank account, this is a debit. And when money is put into your bank account like this, that is a credit. Do not be confused with credit cards or debit cards. Those words obviously are, it's the same words, but it's not that a debit card is only debiting, although if you're using it, it will create debits from your account. And it's definitely not the case that if you're using a credit card that it's somehow creating credit into your account. So don't confuse those words. A debit in accounting terminology or in your bank account is when something gets taken out, which you don't want, if you can avoid it. And a credit is when something gets put in. So we had this beginning balance. There was a debit of $35 and it's interesting, it looks like it was a utility bill. So you can look at this and say, "Okay, I see I had to pay $35 in utilities." This ACH, that stands for, you don't have to know what it stands for. It stands for Automated Clearing House. But in general, when you see ACH, this is the typical way that you have electronic funds transfer. So essentially this $35 went directly to the utility company right over here. And that automatic payment can be a good thing. Sometimes when you pay people with auto payment, they charge you less fees or if it's a loan, they might charge you less interest rates or lower interest because you're more likely to pay it 'cause you're just coming directly out. Now, the next is this direct deposit right over here that is a credit. Maybe this is your employer that is direct depositing your paycheck, which is always a nice thing. And you could see when we had this debit of $35, the balance went down by $35. Then we had this credit of $850. The balance went up by $850. Now, this right over here, this debit, we have ATM withdrawal. Do you remember going to the mall plaza and taking $80 out? If you don't, I would be very worried. It might mean that someone somehow has been able to spoof you or maybe even has your card and you don't even realize it and they know your PIN and they were able to take money out. So keep track that these are the types of transactions that you can actually remember having. Now, pay attention to things like account service fee, right over here that's worrying why am I paying fees here? For what account? Look into that if you can. There isn't a lot of information. Right over here, we have another ATM withdrawal. So this is interesting. Bank fee. Once again, anything with a fee, I would always look into that. They charged us $3 because we use an ATM that's not from our bank. So that's another thing to be very conscientious of. There's oftentimes very high fees for that. And it looks like we only took out $50, but we have to pay a $3 fee. That's a 6% fee just on that one transaction, which can really, really add up. Now, there's this transfer of your auto loans. This is once again an automated transfer because we can see the ACH there. And once again, this could be a good thing because it makes sure you're paying on time. You don't have to pay late penalties. And sometimes, as I mentioned, if you are automatically transferring out, if you have automated withdrawals, electronic transfer, then they will sometimes charge you a lower interest rate. Now, the bank is paying you some interest on this account, so there's a credit there. And then these other debits here, this pending term refers to the fact that it hasn't completely cleared through your account. So that's why you also have these asterisks right over here. So that's just a primer. Encourage you to just keep track of your bank account, make note of all of these things, and try to do this at least once a week.