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Budget Alert! Be Mindful of PayPal Debit and Credit Offers

Filed under: Budgeting
Tags: , — Written by: Simos
June 11, 2010
Money you don’t see can “fly away” before you know it

Money you don’t see can “fly away” before you know it
Photo by: Shaun W. (Stock Exchange)

Many experts contend that, for day to day expenses, cash is preferable to credit if you want to maintain a budget.

The reasons go beyond the obvious: if you regularly use cash instead of credit, you don’t have to worry about interest, fees, debt, or credit card payments, of course.

But there’s a bit more to it than that: handling cash gives us a tangible reminder of our budget and allows us to “see” money going to use.

With the rising number of people using PayPal for small business, bills, and more, it can be easy to lose money if you’re not careful about where it’s going!

What is PayPal?

Owned by eBay, PayPal is the multi-purpose e-commerce service largely responsible for making online purchases “respectable.” It offers business owners and private users a way to conduct transactions and send and receive money. The money can conveniently be added to your bank balance, and your bank balance can be used to fund your PayPal account. PayPal made credit card and “e-cash” transactions a reality for small business owners who would otherwise have to pay huge fees to accept cards; thousands of online merchants move millions of dollars in merchandise through PayPal payments annually.

How Does PayPal Relate to My Budget?

If you do any business online, you probably have a PayPal account. Now, PayPal is offering a range of investment and debit products, including debit cards that draw on your PayPal balance and offerings that pay dividends on your PayPal balance. What began as a simple and easy way to do business is slowly but surely becoming a new way to carry out ordinary banking functions, and even invest.

If you regularly receive payments through PayPal, you should be aware of the pros and cons of PayPal. While it’s an excellent, and credible service for day-to-day transactions, it can also seem like “invisible money” – never quite becoming part of your regular budget, and therefore, going out as quickly as it comes in. Here are a few tips on making PayPal as useful for savings and debt management as it is for selling and spending.

If you get a PayPal debit card, define how you’ll use it: Any time you deal with “invisible money” – money you don’t handle in your hands, that doesn’t make its way into your bank account – you’re at risk of losing it as fast as you get it. A PayPal debit card can make this process even faster, since you could find yourself using it for minor, day-to-day expenses. So before you get one, make a promise to yourself to only use it in certain, pre-defined ways. This will protect you from seeing too much of it, and not enough of your money.

Move your PayPal balance to your bank account regularly: The best way to make your money “visible” is to bring it back into your ordinary old bank account – the one you’re subconsciously used to using responsibly. After receiving money from PayPal every week, I tend to send it to my bank account right away, even though there’s a 3-5 business day delay between pressing the button and seeing the money “reappear” at your bank. This is inconvenient, but the long-term budget benefit is worth it.

Compare savings plans before going with PayPal: As of this writing, savings opportunities from PayPal are related to the performance of a money market fund managed by Barclay’s Global Investors. While Barclay’s is a big name, a successful rate of return is not a guarantee. Also remember that your PayPal balance, on which your returns depend, can be compromised. Hackers often target PayPal accounts, though PayPal itself is exceptionally proactive and helpful about returning stolen balances; when a thief transferred $500 from my PayPal account many months ago, the transfer was reversed and the account placed in protective lockdown before I’d even heard about it. Even so, look at your other options before going with the PayPal alternative.

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