Overdraft Fees and the Rapture

There was a meme floating around the internet complaining about how much money banks make off of overdraft fees.  The picture quoted an amount that represented what every FDIC bank had charged in one year.  Yes, it is an enormous amount and yes, that money could have paid for a lot of great things that would have saved the tarnished image of the evil banking industry.  My problem is saying that the banks are being predatory and selfish by kicking you when you’re down.  There isn’t some evil Wizard of Oz character waiting for you to get close to $0 to then charge you the gas you forgot to account for.  Sorry to disappoint, but the order in which things get paid aren’t selected randomly or with prejudice.

Frankly, overdrafts are usually caused by neglect.  Every major bank has made a decent effort to make it difficult to charge such fees.  There are alerts, real time account information, and overdraft protection services.  Consumer protection laws have been passed to stop excessive fees from being charged and congress has urged banks to be more flexible. Every bank has allowances in place for refunding fees as a courtesy.

Mistakes happen, paychecks get delayed, and emergencies aren’t budgeted for.  Understandable. This article is for the ones living paycheck to paycheck that are habitual offenders.  Stop over drafting your account. /end

The easiest way to save is to stop spending.

Budget every last penny and make sure that saving is at least 10% of that budget.  You absolutely need a buffer to account for mistakes, delayed paychecks, and emergencies.  As a standard, if you work in an industry where work is scarce you should have, at a minimum, a 6/12 month reserve. Your reserve should be able to cover living expenses including housing, transportation, insurance, food, and something extra for unforeseen circumstances. If you’re confident that you can find work quickly should you get laid off or have a short “slow” season then, 3 months is considered adequate.  This is probably not the first time you read this advice, nor the last, but hopefully you consider it, if you haven’t before.  Build up the savings in your main checking account. Savings accounts have limits on how much you can withdraw before incurring a penalty (Reg D) and some banks charge for Overdraft Protection (automated transfers from one account to another to cover overdrafts).  Once you have your buffer in place then you can start sweeping money into a savings.  Once you have a nice chunk ($10,000) then split it and put it away for retirement.  Of course it doesn’t happen over night. Prudence and discipline will get you there.

There are plenty of beautiful things in this world that you can spend your money on.   Having TEN THOUSAND dollars to waste could make great instagram selfies.  Don’t do it.  Every time I spend a dollar I think of what I am getting in return and what is my dollars potential 10 years from now.  Future-me would be really pissed if I purchased a new TV today and was short a couple months later.  Retired-me, really gets pissed because chances are the TV won’t last long enough.  Hermits don’t outlive their wealth but they have boring instagram accounts.  It’s all about balance, completely a personal preference.  10% of your pay into savings is a good start, make it happen and you’ll never regret that you did.

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