Mar

9

Due Date Chasing Is Not Budgeting

Filed Under Budget | 2 Comments

Recently someone told me about his budgeting method: he finds out that latest he can pay a bill without incurring a late fee and then mails the payment just in time. For some bills, this is normal because you incur a late fee the day after it’s due. (Hi, credit cards.) With other bills, you might not get a late fee until 15 days after the due date, but that doesn’t mean you should get in the habit of “budgeting” for late payments.

Budgeting to Pay the Mortgage Late
Mortgages are a prime example of this, and the example my friend used. He discovered that although the mortgage is due on the 1st, he doesn’t get charged a late fee until the 15th. So he pays it around the 14th. This is ridiculous. I expect that this pad was created to allow for three things: 1. Holidays and weekends that occur on the 1st, 2. slow or lost mail delivery, 3. Payment foul-ups like mistaken processing. It’s not an invitation to pay super-late every month.

In fact, it’s not a good habit go get into. What happens if there’s a foul-up with the payment you mailed on the 12th? What if the computers have an error in automatic billing? Now you have only yourself to blame for the late payment.

Budgeting for Late Utility Bills
Utility bills also frequently have long grace periods after the payment is due, but this is a dangerous game to play. If you mess up and mail your payment too late to miss the late payment cut-off, not only will you get slapped with a fee, but they could shut off your power, gas, water, or phone. Is that a risk worth taking?

If you can budget to make the payments late, then you can budget to pay them on time. Yes, you’ll have to spend less for one month, but then you can get on track to pay your bills when you’re actually due. Gaming the system by paying after the bill is due but before you incur a late fee is a slippery slope that could quickly lead to multiple late fees.

So why does he due date chase? So he can spend whatever he wants in the meantime. He doesn’t want to budget his money or spend carefully. He’d rather live on a whim and scrape together the cash at the last second.

If you’re really strapped, then these extended grace periods are a boon, but you shouldn’t plan for them so you can spend whatever you want in the meantime. Instead, sit down and make a real budget. If you can’t do that, then you need to cut your spending so you can pay the bills when they’re actually due.

Feb

11

Leave Slack or Have a Budget?

Filed Under Budget | 2 Comments

Last week I read a post in Wise Bread that left me confused. The author argued that you don’t need to make a budget, you just need to “leave a little slack,” by which he meant underspend. His argument was that you can’t be prepared for life’s little emergencies if you budget every penny, because you don’t have flexibility. I think this argument is a willful misunderstanding of how budgets work by someone who just doesn’t like budgets.

When Is Not Having a Plan Actually a Plan?
As the author describes it, he does actually have a plan. His plan is to spend less than he earns. In order to do this, he has to have some idea of how much he earns, and have a mental tally of what he spends every month. He may not think of it as a formal budget, but it’s a budget nonetheless. If he spent willy nilly, he wouldn’t be able to intentionally spend less than he earned, because he’d have no idea when he reached that point.

Budgets Don’t Contain Hard Numbers
This is where I think people get scared – they worry that if they make a budget, then they’ll only have $61 dollars to spend on food and $13 to spend on personal care, etc. This is not how budgets works. Budgets work in round numbers. We don’t budget $423 a month for food. We budget $450. We usually come in less, but if we come in over, it doesn’t bust our budget. We still have flexibility in there because other categories will probably come in low.

He also argues that budgets are pointless because prices change. If you budget $41 for fuel and the price goes up, you’re screwed. That’s just poppycock. Again, budgets adjust. For things that can vary wildly like fuel or energy costs, you pad the typical amount to cover possible overages. Then if you have extra, off it goes to savings for the time when you have to exceed the pad.

Budgets Aren’t Adjusted Every Time an Expense Changes
This is the other misunderstanding. The author believes that you have to change your budget every time one factor of the budget changes. This just isn’t true. A budget is an overall plan to make sure you have enough to cover everything and some leftover. Yes, if gas prices rise over time, you’ll need to adjust the budget upward. But you don’t have to adjust the budget because you spent $30 extra on groceries on month. You don’t have to make a whole new plan every time one item changes for one month.

My concern with this “leave a little slack” plan is that it’s hard for people just learning to manage their finances to just “leave a little slack.” Certainly, you can do that once you’ve gotten out of debt and comfortably understand how your spending correlates to your income. But if overspending got you into debt in the first place, then a budget is the only way to retrain yourself.

It’s like going on a diet. You’ll lose weight if you cut calories for a few weeks, but it will come back when you start eating normally again. However, if you learn to change the way you eat by adjusting portion sizes and truly understanding the impact of the foods you eat, you don’t need to track it forever. Money is the same way – eventually you can get there, but don’t start there.

Jan

27

Create a Year-End Spending Summary

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Each year, American Express compiles a yearly spending summary and then sends me a link to it. It totals my spending by category and subcategory. I use it to see if any area of my spending is out of whack. Since we make most of our day-to-day purchases on the card, I can easily get a snapshot of my expenses. If you don’t have an American Express, or don’t use just one credit card for all your purchases, you can make your own spending summary. In fact, you should make a summary for ALL of your income and expenses to make sure you’re still on track.

How to Make a Spending Summary
By now you should have received all of your bills and credit card statements for purchases through the end of 2009. Hopefully you use software like Quicken or an online money-management program, which will make this easier.

If you use either of the above, just go to the reports tab and click through to generate an expense summary for all of 2009. If you don’t use software, then this is going to be tougher and take a long time, so maybe just start with a typical month.

  1. Open up Excel and label the rows by your expense categories and subcategories.
  2. Fill the columns with the amounts. If you’re doing more than one month, label each column with a month. Use this formula in the cell: =0.00+1.00+1.52. In place of the amounts I entered, use actual amounts. That will create a running total.
  3. Go through your receipts or statements and enter each amount into the appropriate column.
  4. Now look at your totals. Does anything surprise you? Do you see any large jumps?

The nice thing about using personal finance software is that you can see where you made each purchase. With an Excel chart, you’ll have to go back to your receipts to detect the pattern.

How to Use Your Spending Summary
The spending summary is good for two things: patting yourself on the back for keeping your expenses low, and spotting the areas where your spending is creeping up. For example, our Amex summary showed $108 at Bars & Cafes for Oct.-Dec. 2009. I clicked for more detail and discovered that all but $30 of that was my husband’s Saturday pizzas. We’ve talked about him not eating out six days a week, but he hasn’t broken the habit. Now I see that if it continues, it will cost us over $400 a year! It’s time to have a talk again.

I also worked out that we spend only $85 a week, on average on groceries. This would be great, if only we weren’t spending another $60-$70 a week on my husband eating out. So, that tells me we have enough money in our budget to spend more on groceries if I can at least get him to eat at home on Saturdays.

Of course, some categories will be much higher than you expect, until you dig deeper. For example, our “internet purchases” category was shockingly high, until I clicked through and discovered our laundry machines and blinds were both in that category (rather than furnishing, where I would have put them.)

Don’t use your spending summary to make yourself or anyone else feel guilty. It is what it is. If you find something alarming, talk about it and agree to do better. Then, make a plan to reduce that spending. I see that was my mistake with my husband – we talked about him not eating out six days a week, but he continued to do so. Since he ate out, I stopped buying him lunch food. And then when we discussed it again, he said, “But that’s my pizza day.” I need to start buying him the frozen mini-pizzas he likes again. Maybe that will solve the problem. I can usually get coupons for those.

You should also use your spending summary to adjust your budget if any of the items are markedly different from the amount you planned. That will help you better manage your spending in 2010.

Jan

6

Start the Year Right: New Year, New Budget

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It’s the beginning of the year, which means it’s the perfect time to sit down and redo your budget. Plan out your basic expenses, budget for savings and big purchases, and start yourself on the path to a financially sound year.

Reassess Your Taxes and Income
If you adjusted your retirement or flexible spending account contributions, received a raise, bought a house, had a child, or did anything else to change your finances, then you probably need to readjust your tax withholding and budget for the difference in income. Start by using the IRS withholding calculator, which has been updated for 2010. Enter your income, expected contributions, deductions, and credits. It will tell you exactly how many allowances to claim to arrive at as low a refund or payment due as possible. It’s the best way to maximize your income without getting walloped by a big tax bill. If you need to make a change, file a new W-4 with your employer. You can complete the form and print it right from the IRS site.

Reassess Your Expenses
Now update (or list for the first time) all of your monthly, semi-monthly, and annual expenses. For the irregular or annual expenses, divide the amount due by 12 to figure out how much you need to save for the next year to cover the payment. List the due dates and payment amounts in your budget. Calculate the difference between your income and your expenses. If you don’t have a positive balance, you’re spending too much. If you do have a positive balance, put the extra into savings or invest it.

Plan for Major Expenses
Is this the year you buy a new couch, a new car, or take a vacation? Check your savings to make sure you’ve got what you need to cover it. If you don’t, calculate what you need to save each month and add it to your budget as an expense so you won’t be caught short when the day comes.

Budget for Savings
If you’re not already serious about saving, it’s time to make it a line item on your budget. We usually transfer our money into savings after the second pay period of the month. We like to keep the money in our checking account during the first period as a buffer in case we have a paycheck error (as happened twice last year.) With the money in the account, we know our mortgage payment and bills will clear without us having to transfer money back from savings.

Set Your Goals
If you haven’t already set your financial goals for the year, set a couple of reasonable goals (increase your emergency fund by 20%, for example), and a couple of stretch goals (double your emergency fund). Now figure out the dollar amount necessary for each goal, divide by 12, and add it to your budget as a monthly expense.

Put It In Motion
If you know you won’t remember to transfer the money to savings every month, make it an automatic withdrawal. If you like to move money around, set up the accounts now so you can transfer funds in a flash. Each month, update your budget with that month’s irregular or annual bills and make sure you’re still on track. If you had to spend a little extra on an emergency, deduct it from your goals before you decide to carry it as debt.

Once you get into the habit of using a budget and saving money, it gets much easier every month. Try it for just this month to get 2010 off to a good start.

Nov

10

Paycheck Error: Our Emergency Fund in Action

Filed Under Budget, Money Management, Personal Finance | 5 Comments

Last week my husband and I had an actual use for our emergency fund. We keep part of the fund as a cushion in our checking account and part in a savings account. Every month we transfer our excess income from the checking to the savings, but we wait until our paychecks, mortgage, and major bills have cleared. Last week was a perfect example of what could go wrong if you don’t have this type of system in place.

Paycheck Errors Do Happen
Last week, the payroll company dropped a digit from one of our paychecks, yet somehow withheld the tax for a full paycheck (nevermind that they’re not supposed to withhold tax at all.) The result was a very tiny paycheck. It was so small that when my husband went to the ATM to withdraw our weekly cash, we joked that we were living paycheck-to-paycheck because he’d just withdrawn more than the paycheck.

Obviously, the error is being fixed, but in the meantime we had a large credit card payment scheduled for payment and our mortgage had already gone through. Because we had the cushion in the account and hadn’t yet transferred the excess to savings, our bills were paid without a hitch.

The Case against Automatic Savings Withdrawals
Many personal finance experts recommend that you set up an automatic transfer from your checking to your savings at the beginning of the month to keep yourself from spending that money. If we had such a system in place, we could have been in big trouble because our large bill payments would have bounced before we’d had a chance to transfer sufficient money back from the savings account.

Instead of setting up an automatic system, we include the deposit in our monthly cash flow chart and schedule the transfer once we’re sure both of our paychecks have cleared and our bills are paid. (Note, the chart in this earlier post has debt payments rather than savings transfers, but we’re out of debt now.) If you can’t trust yourself to do that, allow a five-day lag between your pay day and your automatic transfer to give yourself time to stop it if something does go wrong.

The Case for the Cushion
In addition to implementing a lag, I recommend keeping at least a $500 cushion in your checking account. It’s not there in case you decide to spend extra. It’s there in case you receive unexpected bills or one of your payments goes through twice. This also happened to us several months ago. One of our credit cards somehow got paid twice. Unfortunately, it wasn’t because they accidentally applied our single payment twice. The money came out of our checking account twice, resulting in a large negative balance on the credit card. We could have asked for a refund of the overpayment, but we knew we had a big purchase coming up, so we used the card for it. However, if we hadn’t had our checking account cushion, the second payment could have racked up overdraft fees.

With direct deposit, it’s easy to forget to check your paystubs, but you should always check your online bank balance to make sure you were paid and paid the correct amount. If not, use your cushion or emergency fund until the error is corrected. It’s better than racking up late fees and overdraft fees. And always make sure that everything is in order before you transfer your money to savings. The piddling interest you’ll earn from those extra two days won’t match the time you save not dealing with the bounced payments and fees.

Oct

21

How to Prepare for the Unexpected

Filed Under Budget, Emergency Preparedness, Money Management | 1 Comment

Yep, it’s another post about the emergency fund and budgeting for everything, this time from a very personal perspective. It’s also about the importance of preparing for the unexpected.

You Never Know When Something Will Go Wrong
It’s called an “emergency fund” for a reason. Most of the time, these emergencies are relatively minor stuff, like your transmission going out. It’s expensive, but you can handle it. Then there are the personal emergencies that send your budget into a tailspin.

Last week we learned that my husband needs surgery. It’s not life-threatening, but it’s better to do it now than wait until he’s old and has more risk factors. He’ll also likely be out of work for several weeks. That’s where the challenge comes in.

On the plus side, this isn’t emergency surgery, so we have time to make arrangements and reduce spending to prepare for the gap in income.

Always Leave a Buffer for Emergencies
After my husband and I bought our house, we had a nice sum left over that we planned to use for furniture. I don’t know if I had a psychic moment, but I didn’t want to use ALL the money for furniture and then replenish the fund later. My husband did, because we’re having guests at Thanksgiving and don’t currently have enough places to sit.

Then that money slowly started vanishing. First, water mains started blowing up all over Los Angeles, so we got flood insurance. Then we opted for earthquake insurance. Those were unplanned expenses. Then we realized we really should get some sort of window coverings. There goes another $1800. We’d managed to spend $3200 without buying a stick of furniture!

And then we got the news. Suddenly we were glad we hadn’t bought the furniture yet.

Know Your Disability Benefits
Our first step was figuring out how much income we’ll have while he’s out. In addition to my salary, he gets state disability. In California, that’s about 50% of your salary, but it typically takes four weeks to actually start receiving benefits. He bought a cheap disability policy through his trade organization, but unfortunately it doesn’t kick-in for 90 days after the start of the disability. His employer also has a disability policy, which we’re getting details about.

Note that disability benefits aren’t taxable, because they’re insurance, so you get the full amount, unlike unemployment benefits, which are taxable.

We realized that we’d have enough to cover our monthly expenses, especially since he’ll be spending less while he’s recovering, but we won’t be able to make extra purchases or save any money while he’s out.

Plan Your Major Purchases and Irregular Budget Items
As I’ve mentioned before, I built an extensive lists of upcoming house projects and major purchases running out through December, 2010. We’ve been parceling those out along their scheduled deadlines, shifting a little here or there. The furniture was on the list for this month and next month. It was already built into our cash flow chart, too.

Our next step was to sit down with our budget and start cutting. We immediately took out $4000 in furniture expenses. We kept the fridge expense, because 1. not getting a new fridge soon will create a new emergency, and 2. Cash for Appliances is coming and could save us a decent amount of money.

We’ll just push everything back by a few months, and then once he’s back to work and we’re saving again, we’ll be able to reprioritize our list.

We’re very fortunate that we were able to build up savings, and that we have low enough expenses that we won’t be in trouble with one of us out of work for several weeks, however we vowed to increase our emergency fund even more after all this is over. You never know when something will go wrong.

Oct

5

Top 10 Things to Buy at the Dollar Store

Filed Under Budget, Saving Money | 1 Comment

Friday I saw a flippant post that listed ten things not to buy at the dollar store. It so ticked me off that I’ve decided to create a list of ten things you should buy at the dollar store.

Kitchen Towels
If you’re looking to replace paper towels, hit the dollar store to buy cheap kitchen towels. Even if they only last a month or two, that’s still cheaper than paper towels.

Party Supplies
Hosting a party? Skip the dollar store where paper plates and plastic cups cost a fortune. Even the grocery store is too steep. Instead, stock up at the dollar store. It’s not like these things have to last a long time.

Kid’s Party Favors
I know some kids give out fancy favors, but I was always happy with the cheap plastic doohickeys I got as a kid. For a dollar, you might even to be able to “splurge” on larger toy favors.

Pregnancy Tests/Ovulation Tests
Here’s a little secret: many of the dollar store tests are the same tests used by doctor’s offices because they can get them in bulk. Some of them are actually more sensitive than the “real” tests you can get at the drugstore. My friend who took fertility medication told these dollar tests come in handy when testing frequently. Then she bought a “real” test when she saw a positive. Why spend $60 a month on tests when you can spend $6? She recommended the “Dollar Tree” brand.

Personal Care Travel Sizes
Drugstores usually have a travel size aisle, too, and sometimes these items are less than a dollar, but sometimes they’re not. Try the 99-cent store to see if you can find travel sizes for less if you’ve got a long trip planned.

Trendy Makeup
If you’re dying to try this year’s new blue eye shadow or saw a daring lipstick in the fashion magazines, skip your drugstore’s $5 eye shadows and head straight for the dollar store. You don’t want to spend too much money on trendy colors that you might hate or that will go out of style before you use them up.

Hair Ties, Clips, Combs
Anything you’ll be using to pull your hair back at the gym or shower should be cheap. I seem to run through my stash of hair elastics really quickly, so I buy them at the dollar store where I can get a bunch at once. Then I can keep them everywhere – in my purse, in my desk, in my car, in my gym bag.

Wrapping Paper
Why does wrapping paper cost so much? The recipient is just going to rip it up anyway. So, hit the dollar store for your gift wrap and gift bags unless you find a super deal at Costco or Target after Christmas. There’s just no reason to spend $6 on a roll of gift wrap.

Household Cleaners
Is Comet really better than the no-name brand? Is Mr. Clean better than the “Ms. Clean” brand at the dollar store? No. Household cleaner is household cleaner. If you’re not making it yourself and not a super-couponer who can get it for free, then hit the dollar store for your household cleaning supplies.

Paper Goods
If you’re still buying paper towels, then get them at the dollar store unless you’re a coupon maven who gets her paper towels for free. The same goes for toilet paper.

Yes, there is a lot of junk at dollar stores, but a lot of the stuff that seems like junk is actually a pretty good deal. Shop carefully and don’t overbuy just because it’s a buck.

Sep

21

September 2009 Household Budget Update

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Now that we’ve moved into our house, it’s time to update the budget yet again. I’m excluding our new home purchases because those come out of a separate fund from our other household expenses.

We cut back our spending for the first half of the year, partly because we spent all of our time looking for a house and were too busy to do anything else, and partly because we were saving as much as we could toward the house and its future contents. Now we’re spending like crazy to replace all the stuff we’ve been waiting to replace.

So, six months after I last did our budget, and now with a mortgage and property tax, here’s where we stand compared to six months ago:

February expenses

September 09 budgetAuto. Fuel has crept back up, so we’re spending more there. Plus, winter gas is more expensive than summer gas. My commute is roughly the same, but my husband’s commute is a quarter of his old commute, so we’ll have to see if this reduces our spending here. We’ll also soon be buying me a new car, so our service bill will go down, but we’ll be adding a car loan bill.

Clothing. Clothing has remained about the same, but my husband needs new suits, so we’ll be seeing a spike there. Most of the current clothing budget is dry cleaning for his clothes, too.

Dining. Our dining out budget shot way up. Part of that may be the eating out we did while moving, but my husband still buys lunch way more often than I would like.

Medical. Our medical expenses went way down thanks to my new insurance doubling up with my husband’s insurance.

Pet Care. This went up and will stay up. We haven’t yet decided whether our cats will be allowed outside, but they’ll now be getting annual outdoor shots and checkups in case they make a break for it.

Property Tax. This is a new one. It will take a good portion of our budget for a few years, but thanks to California’s wacky property tax system, it won’t rise at anywhere close to inflation. Instead it will increase a fixed percentage every year based on the purchase price. Note: that’s why California is always broke.

Student loans. These are lower again, too. Once again, it’s because of falling interest rates. We don’t expect this to last forever, but we’re enjoying it while it does.

Utilities. We haven’t yet received a water bill, so our utilities may go up even more, but we’re trying to rein in our energy use.

This budget is about $1500 more than our February budget, but the majority of that can be attributed to higher housing costs. Only a couple hundred are a result of our day-to-day spending. We still need to work on that, but I think we’re doing pretty well. Thanks to the tax savings, we’re still saving a good chunk of money every month.

Sep

3

Never Miss a Mortgage Payment with These Tips

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We had a brief moment of panic about our mortgage statement while we were unpacking. It had arrived a few days before we moved and got put with a pile of papers, but then we couldn’t find it in the pile after we moved. I unearthed the payment instructions and payment website from the loan documents, after which we found the statement. The bank offered us an array of payment options to ensure we didn’t miss a payment, and we also took precautions to ensure that we’re never late.

Automated Payments through Your Mortgage Servicer
The first option we set up was automatic payments. The mortgage account site let us create an automatic debit from our checking account. All we needed was our bank tracking info, which is found on the bottom of your checks. We arranged to have our checking account automatically debited on the 1st of every month. We also do this with our student loans. This way we never have to worry about a late payment.

One-Time Online Payments through Your Mortgage Servicer
When we set up the automated payments, it didn’t kick in until October 1. We set up a one-time payment for September 1 through the same site to make sure this month was paid on time. We had to enter our checking account information again, but the payment went through. Because we had the servicer debit our checking on the 1st, it considered the bill paid on time even though our bank didn’t process the payment until the 2nd.

Online Banking
With online banking, you usually have two options – scheduled recurring payments or one-time payments. As a back-up, I set up our mortgage in our online banking account so we can click a few buttons to make a payment from our checking account if something goes wrong with the mortgage servicer. I didn’t set-up any payments, though. Don’t want to get double-billed!

Accelerated Payment Services
I don’t recommend using a service to accelerate payments. We received an offer in the mail to do this, but it wasn’t through our bank. We shredded the info. We also had the option to do this through our online mortgage interface, but for right now we’re doing regular monthly payments. If we ever do accelerate, I won’t pay the bank’s fee to accelerate either. I’ll simply send them an extra payment through online banking.

Mail a Check
You can still pay your mortgage the old-fashioned way by mailing them a check. Given the vagaries of the US postal system, this would be my last option for paying this bill. I’d call the bank to pay by phone before I mailed a check, but if online banking fails you, make sure you send the payment at least seven days before it’s due.

Balancing Your Mortgage with Other Bills
If you’re like us, you probably have a slew of bills due on the 1st. What would happen if one of your paychecks was late? What if your direct deposit got screwed up? We actually receive one of our paychecks at the end of the month, and one a few days into the month. Although we have a large enough cash cushion in our checking account to cover a delayed paycheck, we also took the precaution of staggering our bills. I simply called our primary credit card company and asked them to move our bill due date to after my husband’s pay date. We’ve always paid on time, so they were more than happy to push it back a few days. They didn’t even charge us interest for the extra few days of grace that first month.

Plan Your Cash Flow
As a last tip, make sure you budget your cash flow around all of your bills, including the mortgage. That way you’ll know if you need to shuffle money into your checking account to cover the mortgage payment before you receive an insufficient funds notice.

With all the moving hubbub, I was very worried we’d accidentally pay late. Fortunately, we found the payment site and account number in time, and had the cash on hand to pay the bill without trouble. If you want to maintain good credit and avoid fees, make sure you pay your mortgage on time every month. The banks make it so easy, so let them help you out with this.

Aug

11

How to Avoid Overdraft Protection Fees

Filed Under Bank, Budget, Financial News, Money Management, Saving Money | 2 Comments

Welcome readers of US News’ Alpha Consumer blog! If you want to know more about our budgeting system, I’ve linked to a few budgeting posts about halfway down this post. If you’d like to learn more about how we paid off $40,000 in debt in one year, I detailed it last September.

This morning I heard a story from the Financial Times, by way of NPR, that banks earn $38.5 billion a year from overdraft protection fees. First, this is highway robbery, since most people don’t opt-in to these programs. Second, can avoid paying these fees. If you’ve paid an overdraft protection fee even once, it’s time to take action to avoid paying one again.

Disenroll from Overdraft Protection
About a decade ago, I had an overdraft protection plan. Back then, it meant they pulled money from my savings account to avoid overdrawing my checking account. There was no fee for this, because it was all my money. At some point, the bank stopped offering that and instead switched to using my credit card, but that required a minimum $100 advance, a $20 cash advance fee, and a higher interest rate with no grace period. I opted out of that.

If you’re not sure whether you have overdraft protection, call the number on the back of your ATM card and ask. If they say yes, ask to have it turned off. Yes, your debit card will be declined if you overdraw, but you’ll know right away. You won’t get hit with fee after fee after fee.

If you tend to get hit with overlimit fees on your credit card, ask to have that turned off, too.

Create a Budget and Use It
If you know how much money you have at any given time, you’re less likely to overdraw your account. If you only have $80 until your paycheck hits on Monday, you won’t spend $100 over the weekend. Not sure how to create a budget? Why I have a few posts about different budgeting methods:

The monthly budget combined with the cash flow budget
The envelope budget
The irregular expense budget

Spend Only Cash
Some people aren’t good with plastic, and that’s fine. If you tend to overdraw when using your debit card or go over limit with your credit card, withdraw a fixed amount of cash from your account weekly and stop spending when the cash runs out for the week.

Keep Your Balance on a Post-It
If your account balance is low and you have errands to run, check your account balance and deduct any pending checks or purchases from it. Write the remaining amount on a Post-It and stick it to your debit card. Record each purchase as you make it, and then stop swiping the card when your balance gets low. I’d leave a $10 cushion in case any checks or payments post incorrectly. It’s better to leave a cushion than to fight the bank to credit you later.

Spend Less Money
If you frequently overdraw your account, then you’re spending more than you earn. It’s time to cut back. Start using grocery coupons, take your lunch to work, stop engaging in retail therapy, sell some stuff to raise funds, drive less, whatever it takes to bring your spending below your income.

The Financial Times article noted that 10% of the population pays 90% of the overdraft fees. If you’re in that 10%, it’s time to start managing your money. If overdraft protection kicks in just once per month at $35 each time, that’s a savings of $420 a year. I can think of a lot of things I could do with $420 besides give it to a bank.

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