I was perusing a bank’s website yesterday and came across their page on overdraft protection. Actually, it was titled “tips for avoiding overdrafts.”
It’s advice included
- Keep a check register
- Don’t forget insurance premiums, loan payments, and utility bills
- Don’t forget services charges and check order fees and
- Don’t rely on “float” – the time between when you cut a check and it leaves your account.
Basically, they said: Keep a check register, a rear-view mirror that tells you what your money did to you. Automatic things you should be used to by now that you have to pay every month – don’t forget them. Don’t forget the other fees we will heap on you, the bank chides, and don’t rely on pending charges to keep your account above the negative.
WHAT! This is lunacy. Overdrafts don’t happen because someone forgot a $25 check order fee, and tying a string around your finger to not forget life’s normal recurring bills is ridiculous. Overdraft fees happen because someone didn’t have a plan, and spent everything in their account. THAT is why people overdraft.
Here is the truth about over drafting:
Banks make billions of dollars off of you for over drafting. They really do want you to use more than is in their account because they can slap a $35 fine on you every time you do. That’s why they provide empty advice like “sign up for overdraft protection,” as if you need insurance against some outside, unpredictable threat. This is just nuts. Can you hear how irritated I am?
YOU have to have a plan for your money. What will you make, how much is your tithe, what bills do you need to pay, what amount do you need to save, how much will you invest, and THEN, what do you want to spend and where, and what do you want to save for how long? This is called a cash flow plan, sometimes colloquially referred to as a… budget! You need to ask yourself these questions every single month for the rest of your life. That is what millionaires do, becuase it keeps tehm in charge of their money and actually able to build wealth. When you budget, you will know how much you can spend, because you have spent it on paper first, and you can do 4th-grade math.
Secondly, you need to have some buffer in your bank account! Do not live with nothing in your bank. That is just asking to give your bank more money. When my husband and I dated we used to go on $3 dates, because that’s all he could guarantee he had in his bank account at one time. He did not budget and he did not pay attention. He didn’t know better, and we walked through budgeting together as an engaged couple. We now keep more in our bank account than we used to make in an entire month. It feels very secure and gets rid of a ton of worry.
If you are budgeting for the first time, this means you need to plan to save a week’s worth of bills that will live in your bank account, forever. Treat it like a bill. This way, if you don’t get paid until the 7th, you will still have access to funds amounting to what you will need during that first week. This sets you up for success because essentially, you are getting ahead on your bills.
For example, we used to get paid every Friday. That’s nice, but since we budgeted to earn that month’s rent the same month we had to pay it, sometimes, the first of the month would fall on a Saturday, meaning we wouldn’t get paid that month until the 7th… and we’d be a week late on our rent. That was not smart. In comes the bank, happy to lend you the money at the hefty fine of an overdraft fee.
The truth about overdrafting is your last one can be the last one in your entire life, if you will live intentionally and make a plan, called a budget, live on less than you make, and keep some savings in your account. And that’s the truth!