If your checking account is costing you more than planned, it might be due to overdraft fees. Overestimating your available balance and making purchases using your debit card or checkbook when the actual funds aren’t available in your account can cost you time and money. Resolving one negative transaction can require a change to all of your scheduled payments for the month to ensure no other charges hit your account while funds are low.
Overdraft fees can add up quickly and sometimes cost more than the item purchased or the bill paid. Fortunately, you can say goodbye to overdraft fees by following these tips.
Create a budget.
There’s a good reason most financial experts recommend using budgets. Budgets work – but only if you stick to them. If you’re new to budgeting, start by figuring your take-home pay from your regular job and any other sources, such as alimony, Social Security benefits, hobby income, etc. Don’t let an inconsistent income prevent you from sticking to a budget.
Here’s how to create a budget in less than one hour:
- Review your last three checking account statements. Gather receipts or other documents that can shed light on your spending habits.
- Determine how much of your income was deposited for each of the three preceding months by reviewing your checking account statements.
Base your spending on the lowest earning month.
Use the data from step #1 to help identify your fixed and variable expenses.
While fixed expenses such as auto payments are easy to identify, variable expenses like groceries might be more challenging. To simplify matters, base your groceries or other variable expenses on the highest amount spent on those items in the most recent three months.
Use an online budgeting tool or pencil and paper to compare your income and expenses. Make adjustments as needed to ensure you spend less than you earn.
Automate your bill payments.
Use your newly created budget to set your fixed expenses for automatic payment from your financial institution. Consider scheduled payments as money already spent from your budget. NOTE: It’s possible to set automatic bill pay for credit cards or utility bills even though the minimum required payment might vary each month. This will require setting up automatic payments directly through the credit card issuer or utility company. Add this form of electronic bill payment to your budgeting arsenal after several months of working with your new budget.
Pay with cash.
Leave your debit card at home. Variable expense spending can quickly get out of hand. Set limits and take control by paying for these expenses in cash, when possible. Refer to your new budget when deciding how much money to withdraw from your checking account. Once the funds are gone, spending in that variable expense category is over until the next payday or checking account deposit.
Sign up for e-notifications.
Generations Federal Credit Union (GFCU) members can take an additional step to avoid pesky overdraft fees. The GFCU Online Banking portal allows members to create secure account balance e-notifications. When a checking account balance drops below a pre-set dollar amount, the member receives an e-notification. The member uses that knowledge to decide which next action makes the most sense based on their finances. They can either add funds to the account or put spending on hold until payday.
Signing up is simple. Visit the Online Banking portal page. Log in and navigate to “Settings,” then “Alerts.” Click on “New Alert,” in the top right-hand corner. Follow the instructions to receive customized balance and even transactional alerts via email or text.
While optional overdraft services such as GFCU’s Privilege Pay* can cover transactions up to $500** for a fee of $28 for each insufficient funds transaction, reliance on such services can derail even the best laid financial plans. Don’t let mounting overdraft fees prevent you from achieving your financial goals. Use these tips to ensure your money only exits your checking account when you want it to, not because it has to.
*If you do not opt-in for Privilege Pay, Generations Federal Credit Union cannot pay any overdrafts you may have for ATM withdrawals or one-time debit card transactions, and the transaction will be denied.
** Including fees and transactions.
Written by Freelance Personal Finance Writer, Tracy Scott