Sick of sneaky bank fees and extra charges? Here’s my own personal story on how I deal with these charges.
Tonight after work, I stopped by my neighborhood grocery store and picked up some items for dinner. I got into the checkout line and swiped my debit card with the confidence that comes from knowing I have money in my checking account to cover the purchase. A no brainer, right? Yes, but there have been times when I did not have this confidence because I was buying something at a bad time — either right before payday when I wasn’t sure I would have the money in my account that night (I notoriously don’t balance my checkbook) or when I knew for sure I didn’t have the money in my account, but used my debit card anyway, holding my breath that maybe the charge wouldn’t go through until the following day. I have paid the piper many times by not being careful with my debit card, racking up overdraft fees sometimes as high as $200-$300 a night.
The Trouble With Bank Overdraft Fees
Why I get charged overdraft fees. This is stupid, I know. How difficult can it be to manage your money? I have gotten into more trouble with overdraft charges than I care to admit. I perpetually make mistakes: I don’t balance my checkbook; I misjudge how much money I have in my account; I have the Scarlett O’Hara syndrome (I’ll think about it tomorrow); and I have chronic “busyness.” I am always on the run, I take too much on, and sometimes I forget to think about money and my checking account. There have been many times, particularly when I was in law school, when I could have transferred money into my checking account and prevented overdrafts, but I didn’t have time to think about money, let alone transfer it.
What banks do to vulnerable customers. There is no doubt I am responsible for my money and the overdraft charges I accrue. But banks contribute to my problem as well: They make it easier for me to mess up, and they profit from me when I do. Every night, they send through the highest charge first. That surprises people. But if you have $200 in the bank, and that day you made purchases of $110, $65, $25, $12, and $10 (for example), they will send the $110 purchase through first, causing you two overdrafts on the $12 and $10 purchases.
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I’ve been ultra busy lately, but I finally got a chance to sit down and visit some great financial blogs. Here were some articles on money management and finance that caught my eye recently.
Milking The Dollar: Want to save big with Bing.com? I haven’t heard about this till I read this article about their cash back program! If you want to know how you could get money back using Bing, then this is where to start.
Debt Loans: What are self managed super funds? There’s some work in setting up such a fund, but it’s worth exploring if it’s right for you.
Recession Proof Living: Here are some justifications for needing a public option for health insurance. I wholeheartedly agree with this article. Our health care industry has been failing a lot of us and having had my fair share of medical visits, I realize just how unreasonable costs are becoming in this area. Can’t we look at our northern neighbors to see how they manage their successful health care programs?
One Mint: Love your iPhone? Love Kindle? Well here’s something you may like: a Kindle App on the iPhone! Now you can actually get your Kindle reading done on your iPhone, making things more convenient. Best part of it is that it’s free!
Financial Organizing: This woke up my taste buds! How does California Peach Chutney sound? Here’s a nice post about canning peaches for a Christmas fund raising event at a local church.
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How often do you ask yourself this question? My guess is that most people think about this at least some of the time. I think it’s a good idea to visualize when and how you’re going to reach that million dollar goal — it’s a healthy way to set a goal and focus on it; by doing so, you may realize that the day you actually achieve your dream comes to you soon enough.
There are a few tools and calculators out there that can encourage us to think positively and can help us plan for these goals. I like some of the calculators from CNN Money that give me a picture of the future based on my current financial situation. For instance, here is one of their calculators that asks:
When Will You Be A Millionaire?
By entering some of my personal information in the millionaire tool, I’ve found that it’s going to take me at least 2 decades to reach millionaire status. Here’s what I entered:
For Taxable Accounts
How much I have: $50,000
How much do I save each year: $10,000
My federal tax rate: 33%
My state tax rate: 9%
For Tax Deferred Accounts
How much I have: $75,000
How much will I be saving per year: $4,000
Projected Rate of Return/Goal
Average annual gain: 8%
Desired Nest Egg: $1,000,000 (one million dollars!)
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Lately, I’ve been reflecting upon my money savings.
Another sharp turn in life’s highway. Cruising along a fairly straight thoroughfare for years. Now we are finding ourselves climbing the road through the Continental Divide. Blind corners, steep mountains and unforeseen obstacles.
Money Savings and Pay Yourself First
I never used to listen to the number one advice of financial planners. How does that go again? Oh yeah, “pay yourself first.” Putting 10% of your take home pay into savings sounds like a lot, but even starting with 5% or less is okay, I have found. The biggest thing is to just start.
The easiest way to start paying yourself first is to have an automatic deposit set up. The day your pay check is deposited, your financial institution can automatically take your set amount of money and deposit it into your savings account. From there, all you have to do is watch it grow! Watch it grow and sleep better knowing you have some money set aside for whatever life throws at you.
Use Short Term Savings As An Emergency Fund
So, a few years ago we decided to put some money away into something other than registered safe retirement funds. Now I do know the purpose for this was for later in life, but alas, emergencies come and go and we can thank ourselves for having those funds available to see us through some tough times.
Our emergency fund is going to help us navigate this tough, rough and windy road from one side of the Rockies to the other. Health issues are tough enough to deal with without having monetary worries on top of them.
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What’s A Home Equity Loan?
A home equity loan is a loan where you, as the home owner and borrower, use the equity in your home as collateral for the loan. If you take out a home equity loan, it will create a lien against your property and in effect, reduce the actual equity you have in it. Such a loan is often referred to as a second mortgage, because it’s secured against the value of the property, just like a traditional mortgage.
Often, home owners will take out home equity loans for large home repairs or to pay bills. As with any loan, careful consideration must be given before taking out a loan against your home. Make no mistake, the security for a home equity loan is your house. When it’s used as collateral, and if you are unable to make the payments, the lender will take possession of your most precious asset to satisfy the loan. I think it’s quite a risky set up, so think hard before pursuing something like this!
Home Equity Loan vs Home Equity Line of Credit (HELOC)
If you are considering a home equity loan, you may be weighing the options between a loan or a line of credit. Depending on the lender, the details will be different. Be cautious of whom you are borrowing the money from and carefully peruse the details of any loan, but be especially careful of any loan that takes your home as collateral.
There are some general differences between home equity loans and home equity lines of credit:
- A closed-end home equity loan may be right for you if you need the money all at once. If you need to replace the roof, build a garage or consolidate other debt, then a loan with a one time disbursement may be the answer. The interest rate may be fixed, as are the monthly payments: this may afford you the simplest way to manage your budget.
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A home equity line of credit (also referred to as an open end home equity loan) may be the solution if you need money disbursed at various intervals. This could be the case if you are renovating your house over the period of a year or more, and you are paying different contractors or home improvement stores as you need supplies. Perhaps you are using your home equity line of credit to help a child attend college. Tuition, rent, books and monthly expenses will differ from month to month so a HELOC may be the best fit for you. The HELOC operates similarly to other lines of credit: the interest rate will likely be variable. Your payments may be interest only and will of course, depend on the amount of money you’ve borrowed.
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Does it matter anymore if we are FDIC insured?
Is The Economic Recovery Underway?
According to our government, the recession has now bottomed out, with economic indicators rising for a fourth straight month. I find it ironic that while we’re seeing reports like this proliferate along with the fact that the stock market is at its highest point in so many months (the DJIA is over 9,000 points!), we’re coincidentally seeing stories about troubled banks going under. I’m somehow not entirely convinced that we’re really on our way to economic recovery at this point.
Just recently, Colonial BancGroup went under and had to be closed for good. Because of the continuing bank failures that are occurring, the FDIC (or Federal Deposit Insurance Corporation) is coming up with regulations that are designed to encourage suitors for these troubled banks, hoping to work out partnerships, mergers and acquisitions. And for good reason! The FDIC is watching their bottom line: their goal is to try to keep themselves solvent and to avoid having to pay out funds whenever a bank goes under, unless there’s no other recourse for depositors to get their money back. The FDIC is the last resort for depositors, so if someone else can rescue an ailing bank, they’re off the hook and everyone (supposedly) is happy.
So how is the FDIC planning to make this work? They’re doing a few things:
- On one hand, they are offering to share in the losses of some of these failing institutions so that anyone who steps up to buy them won’t have to bear the brunt of the losses.
- They’re revaluing banks’ toxic assets in order to make it more affordable and cheaper for private equity banks to absorb them.
- The government is also determining whether cheap financing can be offered to those buyers who will be taking over the assets of failed banks.
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They’re working on auctions for loans and assets of failed banks on an ongoing basis.
- The FDIC has been divvying up banks into good and bad pieces, allowing vulture investors to bid on the “bad” while hoping to sell the “good” (or better) assets to traditional buyers using what is called a “loss sharing guarantee” with the FDIC.
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Some more summer reading coming your way! How about these financial posts?
On Your Finances
Debt Loans shares with us How To Read A Product Disclosure Statement (PDS). Do you ever read the PDS of a financial product? If you don’t, you should, since the fine print often reveals a lot of stuff that will clear any cause for potential misunderstanding.
Milking The Dollar has an inspiring piece on how strong savers can become wealthy even at low income levels. Can you become wealthy even if you earn only $20,000 a year? I’ve heard so many stories of people who’ve succeeded on modest salaries: there are facility superintendents, building supervisors and teachers who’ve become wealthy just by being dedicated savers, so I find this very feasible.
My Life Finance discusses the matter of setting and achieving goals. I agree with Bradley that we should be pegging down our goals as a way to get ourselves headed in the right direction with our plans. How can we steer ourselves somewhere without knowing where it is we are going? Great piece.
Almost Frugal talks about what “frugal” looks like. I love this interview conducted with Spending Zero Dollars which shares with us what frugal means and what it is like to live frugally. Any unusual things you do because you are frugal? Good question!
I hope you enjoyed our sampling of financial posts in the PF world. You’ll find more great posts if you visit these carnivals, which I had a chance of joining this past week:
Tired of living with low interest rates in savings accounts? Maybe you should consider CD laddering.
Heard the phrase, but not sure what it means? A CD ladder. Sounds like a product to stack your music. I wouldn’t say that the phrase is familiar to me, but the concept is.
A CD is a certificate of deposit, a guaranteed investment for your money. Because it is guaranteed, you are purchasing something that has a stated rate of return or interest you can earn on that money. Laddering your CDs is a popular strategy in which you purchase CDs with staggered maturity dates.
CD Ladder Basics: Diversifying With Certificates of Deposit
The purpose really is to fit CD laddering into your investment portfolio with a set time frame between roll over of the deposits. Traditional planners may suggest rollovers to take place annually, so that every year you will have an investment come due and can make decisions based on your current (and the current market) situation. Typically, you would roll that investment over, ensuring that its maturity date follows the course of your other investments.
Building a CD ladder can be done without professional help, if you prefer. Choose a financial institution, bank or credit union that offers a good rate of return and with terms you are comfortable with. Instead of putting all your eggs in one basket, stagger the purchases’ maturity dates. Once one CD matures, roll it into a new one.
Even experienced investors who are comfortable with a high degree of risk should consider purchasing CDs as part of their portfolio. A good financial planner can help stagger your guaranteed investment purchases and build a well rounded portfolio based on your needs and risk tolerance.
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