Do you know much money is in your account? I recently asked that question to students in my personal finance class. The silence said it all. They didn’t have a clue and that was very alarming.
Here’s a typical scenario for people who aren’t proactive with their money.
For those with direct deposit:
On pay day, money is deposited into their account. They now have the green light to spend, save, or give. Many choose to spend as if they’ve won the monthly income lottery that will tie them over until the next monthly income lottery without taking care of their needs first.
They swipe their debit card, pull money out at the ATM or bank, and a small percentage write checks. Money is being withdrawn or earmarked at a cyclic rate and most end up being broke until they get paid again. It’s easy to lose track if you aren’t monitoring what’s coming out on top of the bills that are probably automatically debited from their account.
Financial institutions are aware that people don’t know how much is in their account and created the overdraft protection fee. They marketed it as the bank “helping” you. Essentially, they are making a profit because you’d rather skip the embarrassment that occurs when you neglect to add or subtract regularly. No one wants to hear, “Your card has been declined”. Right? According to the Wall Street Journal, in 2013, banks made $32 billion dollars in overdraft protection fees.
I also asked if they just assume the balance online or on their ATM receipt is the amount they think they have in their account? They answered yes. I then introduced them to the old fashioned bank register where you write down when you make any transactions on your account. By using a register, a person is able to monitor what’s being deducted or added to their account. Once the deducted item has cleared, it is annotated in the register by a check mark. This is what you call a bank reconciliation. It’s nothing new but it’s something that’s not being taught.
People who bounce checks have probably forgotten that they just withdrew the money from the ATM that would have covered the check they still have outstanding. They then blame the person or establishment who “waited too late” to cash the check. Bouncing checks is more expensive than the overdraft protection fee because now you owe the bank for lying, owe the establishment a fee for giving them a bad check, and you still owe the amount for the original purchase.
Bank registers are FREE. Imagine that. You have to pay for overdraft protection because you can’t (or won’t) add or subtract but the bank register is free. All you have to do is ask a bank teller for one.
Yes, there are apps to track your spending but try using a bank register before you graduate to using all the apps that want access to your bank information so they can track your spending for you.
You can’t win with personal finances if you are always playing catch up.
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