How I Stopped Over Drafting by Opening Bank Accounts

I used to have a big problem with forgetting where I’d spent money and over drafting when the bills would come out. It was a bit of a pain in the ass, because then you have to come up with money for the fee. In a single year I spent over $1,000 on over draft fees. Not exactly what I wanted to be spending my money on. This was the same time that I was coming to the end of my freelancing, when I had come to the end of my contracts, end of my income, and lost it all.

I don’t mean that lightly.

I lost my house.

My car.

My job.

The world came crashing down, and if it wasn’t for the strong family support system that me and my wife had, we wouldn’t have made it through. We moved in with her parents, where we had a roof and food, and the knowledge that we were welcome there as long as we needed. Love them as we do, we didn’t want to stay very long, so I was determined to figure it out.

The first step was getting our shit together. We started keeping track of our bills, paying extremely close attention to where our money was going. We signed up for Mint.com, we signed up on CreditKarma.com, we started writing down every purchase in our ledger, and cut out the vast majority of the excess. My wife was working, so we started figuring out her average income every paycheck. From there we had a baseline for what we could afford.

At the time we were living on state help, so we had an EBT (Electronic Benefit Transfer) card that we could use to purchase food. Since it was obvious to me that this would be the only money we could spend on food, we became very vigilant about how we spent that money, what we spent it on, and tried to keep as much on it as we could so it would roll over at the end of the month.

We got really good living on nothing.

So good, in fact, that we realized we could afford to get a small trailer. A two bedroom, not big enough for our growing family,  but our daughter was still sleeping in the room with us at the time, since she was so little, so we went for it. It was around this time that I became extremely sick. I ended up having surgery, and was laid up for about a month. During that month I had little to do but think, plan, and read. I read a lot.

I started planning a future of real estate investing, which had always been a goal, but had pretty much faded from my plans when the world crashed down around me. How can you think about investing money you’ve never even seen into a building that you’re reasonably sure you couldn’t even rent if someone else owned it? You can do a lot when you’re watching TV and reading all day.

Finally I was able to get up and move around again. That’s when the bills started to pile up once again, and we realized that we weren’t going to survive unless I got a job. So I got out of the house, found a job as a call center operator. It wasn’t glamorous, but it was full time, and as much overtime as I needed. I was guaranteed a minimum of 40 hours per week, and I took it every single week.

That’s when I built the spreadsheet. It started as an hour tracker, we were able to budget exactly how much we could afford based on me working 40 hours. I was making enough at my job to pay the majority of our bills, and my overtime helped cover the rest. We started to thrive, but we still had a problem. Trying to keep track of everything was still a pain in the ass.

And I was still over drafting.

So, this is how I stopped over drafting by opening bank accounts. It’s not really that fancy of a trick. I was making so much at my job that I was no longer eligible for state food aid, which is not a complaint. But, growing up using state aid, you get trained that one card is for food, and the other card is for cash. I realized that the same principle could work for my own accounts. Why did I have to lump all my money into a single account?

At my bank we get free checking, so I went and opened two additional accounts. The first I labeled “Food”, the second I labeled “Bills.” These are pretty self-explanatory, but I’ll explain them anyway. In my spreadsheet, I have itemized each expense down to it’s yearly, monthly, weekly and daily costs. I then assign an income hourly rate, and average hours to each hourly job in the income list, and if it’s a salaried position there is a salary field. This gives me the budgeted monthly income. In my calculations I also added in an estimated tax rate, so I’m creating a budget off of the Net not the Gross.

In the itemized expenses list, each item is given a category of Personal, Bills, Food or Savings. This determines which account the money will be located in. Each category is then totaled up for it’s weekly amount. Now, I am salaried and get paid weekly, but my wife is hourly and receives her check every two weeks. This is a bit of a pain. That said, I calculate the percentage for each person’s income. In other words, I take the calculated total weekly income, and figure out what percentage each of us brings to that figure. I then use that percentage as the basis for the bills.

I.E. If I bring in 60% of the weekly income, I pay 60% of the weekly expenses. She pays 40% of the weekly expenses, combined every two weeks, so she’s paying two weeks worth every paycheck. We get our checks direct deposited into our Personal account. When they show up, we then transfer the corresponding dollar amounts to each of the other accounts.

Each account has it’s own specific purpose. We don’t use the Bills account unless we’re paying a bill, we only ever use the Food account for Food or household items like toilet paper, etc. Savings is for long-term savings goals, which we’ve only recently been able to start putting money towards. And Personal is for everything else. Coffee, clothes, gas for the car is also put into this account, but could easily be put into it’s own account. We just felt three accounts was good enough. And for our purposes, it has worked. We haven’t over drafted an account in over two years.

That’s two years of no over draft fees. Two years of not having to worry about where my money was. Sure, we’ve gotten close to $0.00 in our accounts, and in fact get down to empty in our Food budget every single week, but we’re not worried.

And that’s worth a hell of a lot.

I don’t make a big fuss about this setup, but I’ve mentioned it here and there and every time I do, someone inevitably makes the comment that it’s such a good idea. I agree, but it’s not just the splitting up of the money that’s important. The underlying thing is that you have to know where every dollar you have is going. You also need to be able to look at your paycheck each week, and see a number that is equal to or larger than what you expected to see. If you can’t do both of these very simple things, you are going to run into trouble eventually.