This article will explain what direct deposit is, how to set it up with your employer and ensure that you have a steady income flow so that you may be on your way to automate your financial system (e.g. sending money to your savings & checking account, and/or investment accounts 401k).
What is direct deposit?
Direct deposit is a transfer of your paycheck funds by your employer directly into your bank (financial institution) typically at a rate specified (weekly/bi-weekly). These funds will automatically be transferred to the accounts that you’ve specified, and even in amounts that you have specified (e.g. 80% to your checking account and 20% to your savings account). Most importantly, this will help you avoid dealing with physical checks and trips to your bank.
In short, direct deposit allows your payroll checks to be directly deposit to your bank. Typically you’ll setup this once, usually when you start a new job and usually forget about it; however, as I’ll explain later, you have other options as well.
Why would you setup direct deposit ?
Potential money savings
I’ve known people who cash their check at those terrible 1-10% check cashing locations for various reasons and unfortunately they are losing their hard earned money due to not having a bank account setup or need instant access to money to pay overdue bills. I personally have a problem with these for profit checking cashing places as they are prevalent in low-income areas and offer these predatory fees to those disadvantaged communities. Unfortunately for many this is a reality; however, there are other options.
Another advantage is that your money will be consistently deposited and will allow you to automate some of the reoccurring monthly payments and thus save you those late payment fees that we might encounter.
Direct deposit allows you to choose more than one account in which you may send your money. For example, if you have multiple banks (e.g. Savings account with Chase & Checking account with Capital one) you may send some of your paycheck to one account and the rest for another.
Convenience & Security
Imagine not having to drive to the bank every Friday after work and wait in line to deposit your hard earned-check at the bank, and instead being able to drive back home or spend those extra 30 minutes with your loved ones. Direct deposit will save you time/gas/and decrease that unnecessary stress.
Lastly, imagine not having the stress of potentially misplacing or losing your check after your employee handed you the check on payday, this is a real fear for many people who live paycheck to paycheck.
I get it now! How do I setup direct deposit?
Typically you’ll ask your HR rep for a direct deposit form (similar to this one) and once you fill it out, you’ll return it to them. Typically the form will require the following:
Your Name – This is typically your name
Bank routing number (ABA number) (This will vary by bank, for example if you are a Texas Chase customer, your routing number will be 111000614 )
Account Number– This is your bank account number.
Void check – A void check might need to be provided as well.
Type of account – Savings or Checking’s accounts, or both!
If you have a physical check from your bank, you should quickly identify your bank routing number & Account number for your bank. (See below)
If you have a U.S based bank, you may use The American Bank association to search for your banks routing number here.
I submitted & returned application, now what?
You might have to wait anywhere from 7-14 days for this process to finalize and finally start receiving your paychecks directly to your bank account, but this shouldn’t impact you getting paid in time.
I can’t setup direct deposit? What are my options?
I have a bank account + smart phone
If you do have a bank account and own a smart phone, you may install your bank account’s app and deposit your paycheck that way. Most major banks allow you to take a picture of your check and thus saves you the trip to the bank, and gives you an quicker way to deposit so your money straight to your bank. It’s not as fast, and convenient as direct deposit but it’s our next best option.
I don’t have a bank account
You should really consider opening a bank account as it will be the foundation of our system to automate your personal finances.
Direct deposit is a great way to start our future automated financial system as it will enable an steady income flow to our savings and/or checking account. This will enable us to automate other payments such as bills, credit card payments, and eventually our future investments.
Lastly, whether you have the ability to do direct deposit or not, take this time to review your monthly income (your take-home money at the end of the month), this amount will come in handy in later articles.
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