Overdrafts are a real pain. Right when the account balance is already low, the bank swoops in with the “gift” of overdraft protection. And boom! A $35 overdraft fee is added to your account. Now it’s even more in the red. Then another charge hits. Another $35 overdraft fee…
And on the cycle can go. It’s incredibly aggravating if you find yourself in this situation. I’ve had clients losing hundreds of dollars monthly to overdraft fees. And even without the fees, seeing your account in the negative never feels good.
There are a number of reasons why this may be happening. I will discuss three of the most common ones I see working with my clients as a financial coach.
Not Doing a Budget Can Cause Overdrafting
Without planning and tracking our spending, it’s nearly impossible to thrive financially. Overdrafts are often symptom of not budgeting. Money disappears on us without a budget. Impulsive spending choices sneak in and put holes in the ship of our finances.
As I mention all the time with my coaching clients, a budget is a tool that gives you financial freedom. Contrary to popular opinion, it’s not overly-restrictive and it doesn’t mean we cannot have fun in life.
A budget is simply you determining where your money goes. And you’re the only one who gets to decide that.
By actively telling your money where to go, and marking down where it has gone, you’re to reflect on your spending choices. If something needs to change, you will have that information right in front of you and can act on it.
So, for example, let’s say eating out is a big budget-buster. That extra $15 here and there may be adding up to hundreds of dollars per month. If you don’t have that available in your account, the odds of overdrafting are increased.
If you’re not sure where to start with doing a budget, check out my guide on how to make a budget. Once you have that going, you’ll have greater control of your money, and will be far less likely to overdraft.
You May Need to Increase Your Income
Even if you’re doing a budget, overdrafts could be caused by not having enough income. Sometimes we can do everything to pull back excess spending, cancel subscriptions, and eat at home. But at a certain point, the problem may just be our income.
We have to do something about that. But what I want to emphasize is that mentality is critical here. If you believe that you’re stuck with your current income level, you’re going to remain stuck. I guarantee it.
But if you take the mentality that there is opportunity out there, you’re far more likely to discover it. Just like with a radio station, we can’t discover something we’re not tuned into.
There are many ways to get your income up to stop the overdrafts. Start at your current job and see if overtime is available. If there are extra shifts, volunteer to take them. Take the initiative and look for ways to go above and beyond.
You may also need to look for another job. This might be a second job outside of your main job’s hours, or a transition into a new primary job entirely.
There is also the gig economy, with services like Lyft, Instacart, TaskRabbit, and Rover. You can make yourself available for these types of jobs according to your schedule.
To get cash quickly, selling some of the extra stuff you have is also an option. How many of us have things around the house that we never use? Doing a thorough decluttering and listing those items for sale can be a great way to gather cash. This clears out physical and mental space in your life, as well.
If you do all these things, your odds of dealing with overdrafts goes down significantly over time.
There’s No Buffer in Your Checking Account
While I advocate for using a zero-based budget, this does not mean I want you going down to zero in your checking account. Don’t play that game of financial Russian roulette!
I want you to have some margin in your bank account. While we aim to have all dollars of our income accounted for in the budget, sometimes we can forget certain expenses. We need to have some space for if this happens to prevent spiraling downward.
For example, we may have expenses that only arise quarterly, semi-annually, or annually. Certain insurance policies may have this type of payment schedule.
If that payment is several hundred dollars, the last thing we want to see is a budget that looks great, but to have the sneaky forgotten expense cause an overdraft.
By having a buffer in your checking account, you reduce the risk of this happening. I call this buffer an Elevated Zero. This is the dollar amount that your account never drops below.
While true zero would be $0.00, an Elevated Zero might be $500 or so. (Almost like how 0 degrees Fahrenheit is not absolute zero, 0 degrees Kelvin). This allows you to account not just for a few forgotten expenses, but also the ebb and flow of your paychecks.
Final Thoughts on Overdrafts
Doing a budget, getting your income up, and building a checking buffer are three solid ways to avoid overdrafts. These are active steps that put us in the driver’s seat of our financial destiny. But these all require us to believe we can have something better and to act accordingly.
If you’ve accumulated significant overdraft fees, you may even be able to negotiate with your bank to get that amount reduced. I’ve found that mentioning you’re working with a financial coach can often persuade the bank to be flexible, since you’re showing good faith effort to fix the problem.
Overdrafting doesn’t have to be a constant issue for you. You can escape out of this and thrive financially. But it’s going to take work. Financial freedom is within reach, and I’ll help you take a hold of it.
To start your journey to financial freedom, book your free Discovery Session. See things in a new light and perspective to unlock your potential. I look forward to meeting you soon!