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Dave Says - Dave Ramsey

Banks and credit unions: What's the difference?

Dear Dave,

What’s the difference between a credit union and a bank?

– Jake

Dear Jake,

A bank is owned by stockholders. When banks make a profit – and they should – the stockholders, who are owners of the company, get that profit. It can be dispersed in the form of dividends, or an increase in the stock’s value.

A credit union is run more like a cooperative. Technically speaking, it’s operated not for profit, and the owners are the credit union members, who are also customers.

As a customer of a credit union, whatever you pay into the credit union – the “profit” – is returned to the members in the form of increased services or actual disbursements. Sometimes, you actually get a check from the credit union.

A lot of banks don’t like credit unions, and say they have an unfair advantage because of their nonprofit status. This really isn’t true. Credit unions, with whatever “profits” are made, put that money right back into creating cheaper checking accounts, better interest rates on loans, or higher interest rates on savings.

Banks could do the same thing if they were willing to make less profit. So, there’s no disadvantage. They’re just trying to keep stockholders happy and sell stuff to customers. But really, that all means nothing if you don’t get good service from the organization.

– Dave

Time to call it a day on this job?

Dear Dave,

I make about $25,000 a year in my day job, but I have side jobs as a personal trainer and a DJ. I’ll make about $10,000 this year as a trainer, and $25,000 to $30,000 as a DJ. I’ve almost got all my debts paid off, and I love both of my side jobs. I was wondering how to tell when I’m ready to leave my day job and concentrate on personal training and my DJ work.

– Steve

Dear Steve,

I always tell people to first get to a point where their side hustle is generating almost as much money as their day job. I want the boat pulled as close to the dock as you can get it, so that when you make the jump from the dock to the boat you don’t hit the water.

In your case, I would want the $10,000 you earn from personal training to look more like $20,000. When you reach that level, combined with what you’re making as a DJ, it would create a pretty safe situation for you to quit your day job.

Maybe you could cheat a little on the personal trainer money, because you’re making as much or more as a DJ as you are in your day job. Otherwise, you’re giving up $25,000 for $10,000 and only hoping the personal training gig will grow. That’s not a good idea. I’d like to see that hope proven a little bit more before you walk away from a day job.

Good luck, Steve!

– Dave

Follow Dave on Twitter (@DaveRamsey), or go to daveramsey.com. 

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