Money Hacks

An AskMetafilter user wonders: What are your strategies for avoiding overdraft fees?

I earn enough money to pay all my bills and eat out a bit — it’s the most comfortable I’ve been (financially) in four years. I do not earn enough to have any buffer between paychecks, however. I try to avoid cash and pay for as much as I can with a debit card, via the web if at all possible. Every month it seems that I have miscalculated yet again and the overdraft pile-on ensues.

Speaking as one who has been there, overdraft fees are an indication that you’re not tracking your finances as closely as you think you are. Tracking finances only through receipts, or only through your bank’s web site is inadequate. You need to keep a separate ledger (perhaps a checkbook ledger) or use a piece of software (such as Quicken) in order to track every expense. If you live paycheck-to-paycheck, and fail to track every expense, you will experience overdraft fees from time-to-time. It may be more convenient to only track your expenses via your bank’s web site, but if you do that, you need to realize there are always going to be checks and other transactions “in process” that don’t show on the web site, and consider overdraft fees the price you pay for adhering to such a system.

There are other ways to compensate for chronic overdrafts, of course. Banks offer overdraft protection, which is usually linked to a secondary account (such as a savings account). This is an excellent option for those who repeatedly suffer overdraft fees but are unwilling to record every transaction as it happens. Many people create an artificial buffer in their account. At one time, I had a $100 in my checking account that I would not allow myself to touch. If my balance fell below $100, I just stopped spending. I wasn’t overdrawn in the bank’s eyes (and thus did not receive a fine), but I was overdrawn in my eyes. This worked until I spent that $100.

Overdrafts are a clear indicator of poor financial health. If you suffer from chronic overdrafts, it’s time to evaluate your spending behavior. Build a buffer and track expenses.