How to Plan Your Finances to Avoid Overdrafting Your Account
Seeing a negative balance in your checking account can feel discouraging, but it doesn’t have to define your financial future. Planning your finances and using certain mobile banking features could give you more control over your money.
Let’s explore some simple strategies you can start using today to help keep your checking account from overdrafting.
Know your checking account balance
One of the simplest ways to avoid overdrafts is to check your account balance before making a purchase.
In addition to using your mobile banking app to stay informed, you might also consider enabling text, email or push notification account alerts about key transactions – such as when your balance falls below a certain limit or funds from recently deposited checks are available.
Use visual aids to understand your cash flow
Depending on when you get paid – and when your most expensive bills are due – you might find that you have more disposable income some weeks than others. In this case, mapping your anticipated monthly cash flow could be useful.
Consider using a calendar or budgeting app to create a visual timeline of expected deposits and monthly bills. If you frequently overdraft your account due to forgotten automatic payments, setting reminders on your phone may also be practical.
Create a monthly budget
Understanding your cash flow is one thing, but managing it effectively is another. Creating a budget may ensure you don’t run out of money before your next paycheck.
After mapping out your income and bills, you’re already off to a great start. Once these predictable transactions are accounted for, you can consider how much money you want to spend each month on variable expenses – such as groceries, fuel and entertainment.
For small, daily costs – like grabbing a coffee on the way to work – you might consider budgeting a blanket amount and making a single withdrawal to cover it. In addition to reducing the chance for small charges to add up and cause an overdraft, making these purchases with cash may help you stay more mindful of discretionary spending.
Of course, even the best budget can’t predict the future. Sometimes, the price of your favorite grocery item changes, or you’re charged an unexpected fee at the DMV. Including a “buffer” in your budget could help cover the difference.
You might also benefit from tracking your actual monthly spending to compare it to your goals. You may need to adjust your budget if you’re consistently overspending in a particular category.
Select payment methods wisely
When you pay for goods or services by check, it can take days for the check to process and the amount to be deducted from your account. You could even wait for weeks if the recipient isn’t in a hurry to deposit your check. In the meantime, you’ll need to maintain a high enough balance in your account to cover the check once it’s cleared.
Unfortunately, it’s easy to forget that you wrote a check and accidentally spent the money by accident before it cleared. This could lead to an overdraft. You may be able to avoid the situation altogether by paying with your debit card instead. If the payment is for a friend or family member, you might also consider using a peer-to-peer mobile payment app to send the money instantly.
Don’t spend deposits before they clear
Some banks place temporary holds on large deposits. If you expect the funds from a large check to be available immediately, you might try to spend them too soon, causing an overdraft. If you’re making the deposit in person, you can avoid this by asking the teller when the funds will be available. You could also check your bank’s policies regarding large deposits online.
Know which fees apply to your checking account
When your checking account balance is low, even a small, unexpected banking fee can cause an overdraft. Some banks offer you the chance to avoid a monthly service fee altogether by maintaining a minimum balance or electronically depositing money from wages or government benefits on a monthly basis. Choosing a low-fee checking account may also help.
If an overdraft does happen, know your options
Understanding the potential consequences of an overdraft is important, even if you’re doing your best to avoid one.
Each bank has its own policies about overdrafts. Some banks charge a fee right away for every transaction that exceeds your available account balance, which can add up quickly. Other banks may give you a certain number of days to repay an overdraft before charging a fee.
Having overdraft protection in place could give you peace of mind. Consider checking to see whether your checking account offers features that minimize the negative impacts of overdrafts. Can you opt into covering overdrafts with money from your savings account, for example?
If you prefer, you could open a checking account that prevents overdrafts altogether by preventing purchases and withdrawals that exceed your available balance.
Disclaimer: Article content is intended for information only. It may not reflect the publisher nor employees’ views. Consult a financial professional before making financial decisions. Publishers or platforms may be compensated for access to third party websites.
