Overdraft fees add up quickly if you're not careful.
Why it matters: Banks pulled in a whopping $15 billion from customers with less than $350 in their accounts in 2021. These are customers least likely to be able to afford such fees in the first place.
Incredibly, 75% of overdraft fees are charged to consumers accumulating over 10 overdraft fees per year. They’re paying roughly the total amount of money in their account in fees, then have to make up for it just to get their balance above zero every month.
This system does not favor bank customers.
Cutting back on spending
While there are things you can do to fight bank fees, one of the best places to start is by learning how to stop overspending.
Here are six useful tips to help you get started:
- Make a budget. A budget is a great way to get a handle on your spending. Budgeting is necessary for managing your finances and achieving your financial goals. Creating a budget involves constructing a plan for allocating your income to different expenses, as well as savings—be it into a high-APY savings account, 401(k), or other long-term savings options.
- Download a spending app. Budgeting apps can help you cut down on spending. These apps allow you to track your income and expenses, set budgets for different categories, and monitor your spending habits. You’ll gain a better understanding of where your money is going and make informed decisions about how to allocate your funds.
- Automate your savings. Setting up automatic transfers from your checking account to your savings account can help you build up an emergency fund. This way, you can make sure that a portion of your income is being saved each month. This technique takes the decision-making and effort out of saving, as funds are automatically transferred before you even have a chance to spend them. Automating your savings can also help you avoid the temptation of buying unnecessary items. That way, if you need to cover an unexpected expense, you won't have to rely on your overdraft protection and rack-up fees.
- Avoid impulse purchases. Impulse purchases can quickly add up and throw off your budget. Still, it's a crucial step toward achieving financial stability. Each month, plan ahead and make a list of only the items you need. By sticking to this list, you’ll avoid succumbing to temptation. Another technique is to wait before making a purchase. Take 24 hours to think it over and see if it's a true necessity. If it still seems important, consider if you can purchase a cheaper alternative or wait for a sale.
- Know your overdraft limit. Make sure you know your bank's overdraft limit. Some banks offer overdraft protection (often for a fee), but you may want to consider other options, such as a debit card.Be mindful of recurring expenses. Recurring expenses can add up quickly if you're not careful. To avoid these expenses, start by tracking all of your regular payments and subscriptions. Consider if you can cut back on any non-essential services or subscriptions. You can also opt for more cost-effective alternatives, such as free trials or lower-priced options. Set reminders to review your recurring expenses on a regular basis to ensure you're still getting value for your money.