Get Out of Odious Overdraft
The families I work with are often in overdraft at some point in their month. Some of them spend virtually the whole month in overdraft. And some have no overdraft protection (or the wrong plan) so they end up paying exorbitant fees. You’ve no doubt seen me give people the What For because they’ve been racking up $300/month bank fees. What a waste of money!
Being in overdraft is a strong indication that you’re not:
a) living within your means, and
b) keeping track your expenses.
If you want to get out of overdraft and back into the black, it will likely take some belt-tightening for a few months. Here’s how to do it.
- Make a list of your monthly Fixed Essential Expenses… The bills that you have to cover every month like your mortgage and car payment, your minimums on your debt and your childcare expenses. Total it up.
- Make a list of your monthly Variable Essential Expenses…The costs that you simply can’t avoid, like food and gas. Be careful now, we’re not talking fancy food and lotsnlotsa gas… we’re talking the bare minimums to get you through the month. There’s no clothing, no movies, no shopping at all on this list. Total it up.
- Subtract these two totals from your income. How much do you have left? If you don’t have enough to cover the unessential expenses in your life – the fancy cell phone, the uppity satellite service, and the like, you can see your problem. Time to cut back on the nice-to-haves until you’re out of the hole. Change your services to the most basic you can get away with.
- Commit to living on this very harsh, very tight budget for a month. Just one month. Take all the rest of the money you make and stick it in an envelope, a jar, or a high interest savings account… as long as you don’t spend it.
- Clearly you’re not allowed to use your credit during this process. You’re, in essence, having a No Shop Month.
- When you get to the end of the month, add up how much you’ve got left after all your bills have been paid. Is it enough to cover your overdraft? If it is, then you’ll have to live through this belt-tightening horror for one more month to build up the buffer you need to never go into overdraft again. If it’s not, you may have to feel the pain for a couple more months until you’re in the clear.
From here forward, you want that buffer stored in an account that’s linked to your primary transaction account so that if you see your account running a little low, you can transfer some money from your buffer account to keep you afloat.
You are also going to become meticulous at tracking your spending. (http://gailvazoxlade.com/blog/archives/719) After all, you don’t want to have to go through this pain again, right?
Some people create a buffer in their transaction account to prevent overdrafts, keeping, let’s say $100 in the chequing account that they never allow themselves to spend. If their balance ever falls below that $100, they simply stop spending. While they’re not overdrawn as far as the bank is concerned – so there are no fees – they’re overdrawn in their own eyes and go without until the next paycheque hits the bank.
Getting out from under the Odious Overdraft is not easy task. But you can do it if you’re determined to stop paying the bank for your lack of self-control. Yes, it’ll hurt for a month or four. But the relief of being back in the black is fabulous. Let me know how it goes.