This is a guest post by John Gower. He is a writer for NerdWallet, a website dedicated to helping consumers save money by reducing overdraft fees or finding a high interest savings account. He also writes about personal finance for sites like US News and Smart Military Money.
Overdraft fees can be a nightmare, and unending vicious cycle. What many people don’t realize is that overdraft fees aren’t just a financial problem – they’re a lifestyle problem. Just like ending the cycle of overdraft fees can be challenge, so can changing your lifestyle and spending habits, but it is doable, and with a little effort you can get back on track.
Try removing the temptation
The first thing to realize is that the bank provides overdraft as an optional service to you, so if you are constantly racking up fees, consider opting out of it. The bank will no longer be footing the bill for you, so if you don’t have enough funds and you use your debit card somewhere it will be declined on the spot. If you decide to take this step, it’s also very important to limit your use of checks, or if possible don’t use them at all. This is because the check will bounce, and while banks don’t charge you for declining a debit card payment, they will charge you for a bounced check.
Reevaluate your finances
So now that the false safety net of overdraft services is gone, the next thing to do is take a look at your finances. Do so carefully. Go over bank statements for the past few months. Add up all essential payments like your rent or mortgage, groceries, gas, utility bills and other bills that occur every month. This is your base number. The difference between this amount and what you make each month is what’s left available for discretionary expenses.
However, don’t resolve to just spend a little less so that your bank account is at $0 at the end of every month. Instead create a buffer amount. This is the amount that will be in your bank account no matter what, and should only be used for emergency situations. If it makes it easier, put this buffer amount in a savings account immediately after receiving a paycheck. You may also decide to link the accounts, so if you slip up funds can be transferred from one account to another and you won’t be penalized as much.
Stay alert, with the help of technology
The next step is to put a balance notification on your account. Most banks offer this service, and can even be set up so that you receive a text message when your account has fallen below a certain amount. This way you’ll know you’ve already gone through half the money you’re allowed for the month, and can preemptively assess how you’ll cut back.
Taking these actions will help you conquer overdraft fees, but if for whatever reason it gets too hard and you feel overwhelmed, don’t be embarrassed to ask. Either a friend or relative can be a great resource in keeping you on track. There’s no shame in asking someone to aid you in building fiscal responsibility, and they may even show you places where you could be saving more than you thought.
Getting out of the overdraft cycle may feel like an uphill battle, but it’s certainly winnable. All it takes is proactive steps on your part, and resolving to pay closer attention to what comes in and what goes out of your bank account.