Once upon I time, a young man we’ll randomly call “Jim” was in college and barely had a dollar to his name… Ok, fine – that young man was me – dang it, you ruin everything! Anyway, like a good number of college students, overdrawing my checking account wasn’t too uncommon.
In fact, it actually wasn’t uncommon for me to blow out my balance on a periodic basis for a year or so after graduating college as well.
Eventually, though, I started to make some good progress on my finances over the years and overdrawing my checking account became a pretty rare occurrence, if it happened at all.
Over the past year or so though, I’m back to overdrawing the account again. And guess what? I do it on a regular basis – probably once a week. And, here’s the clincher… I’m absolutely fine with it.
Why, you ask?
Well, believe it or not, it’s not because we’re struggling for money anymore. We actually hit the sacred $1 million net worth milestone earlier this year. So what the heck?! Why am I still blowing out my checking account?
I figured it out Jim – you just truly suck at handling your finances!
Whoa, no need to get aggressive – aren’t we all friends, here? Anyway, that’s not it either. I’m a very detail-oriented person and with the help of Quicken, I can actually tell you where every penny is at all times.
Ok, this is stupid, Jim – just tell me what’s going on or, so help me, I’ll ditch this article in two seconds!!
Why I like overdrawing my checking account
Wow, simmer down! Ok, ok, here’s the scoop… overdrawing my checking account is actually something I do because I feel like money sitting in it is a waste.
We all know that, right now, interest rates in bank accounts outright suck. Yes, you can get 1% in some online savings accounts and I take full advantage of that with my account at Ally Bank.
But otherwise, any dollars I have sitting in my credit union checking account are currently earning a measly 0.03%.
So, I’ve slowly morphed the way I handle my finances into a way that invests in our future first and takes care of creditors second.
Pay yourself first
We’ve all heard the “pay yourself first” speech. For years, that’s exactly what that was for me – a figure of speech. But as we’ve become more focus and stringent on our money, it’s now exactly how I manage our finances.
I run an extremely tight ship with my accounts (Mrs. R2R’s accounts are a different story).
I get paid every two weeks at the good old 9-5. I currently have 20% taken out of my paycheck and going right into my 401(k) plan. I also have $175 sucked into my Health Savings Account (HSA).
All that money’s gone before I even get to see it (makes me want to cry!).
Then I have $211.53 being ripped out of my checking account and going right into my Roth IRA. Yes, it’s an odd number, but do the math… $211.53 times 26 paychecks a year equals $5,499.78, which is 22 cents shy of the 2017 contribution limit. Oh, and don’t worry – I’ll get that extra 22 cents in there before the end of the year! 🙂
Finally, I have $650 jumping ship and heading right into my Ally savings account.
And that’s all before I even pay my bills. Then when I go to pay those bills, there’s not always enough in my checking account for it.
The beauty of this is that the money getting pulled out and going into my investment and savings accounts builds up very fast. The key, of course, is automation – I take it out of my own hands, so I don’t come up with excuses as to why I can’t pay myself first.
The bad news is that I don’t leave much room, if any, in my checking to pay my bills.
Before you start beating me up over this, know that I have “a system” that seems to work well for me.
First off, I also have a savings account at our credit union and I keep the balance at $2,500. It currently only earns 0.05%, but I’m Ok with that – that’s my cushion. On those days when I’m overdrawing my checking account, the funds to cover the overdraft get pulled from my savings account with no penalty (very important).
Before I pay my bills each payday, I first make sure to get my savings account back to the $2,500 balance I want it at… because I’ll possibly be needing it for protection over the next couple of weeks.
Then I take what’s left of the scraps of my paycheck and pay my bills. I actually pay off my credit cards every two weeks on payday (how’s that for interesting?!) and schedule the rest of my bills to be paid on the date they’re due.
Then I let nature take its course. If the numbers work out, great. If not and I end up overdrawing my checking account before my next paycheck, I’m just fine with it… let my small savings account temporarily pick up the slack.
In other words, if I have a dollar sitting in my checking account, it’s just wasting away.
We could argue that it’s no different from keeping the $2,500 in my checking account, but at least it’s earning a better interest rate in my savings account (though still barely anything).
It also helps me to think that I don’t have any money to blow. It’s a stupid mind trick, but I consider my savings exactly that – savings – untouchable, so to speak.
So there you have it… I’ve actually sunk to the level of enjoying overdrawing my checking account instead of freaking out about it. Weird, yes, but it seems to work for me.
Um, am I the only idiot out there who thinks overdrawing my checking account is a good thing?
Thanks for reading!!
14 thoughts on “Why I Like Overdrawing My Checking Account”
With that overdraft protection you are a genius, Jim! For those without it your tactics would be VERY painful. My bank has an attached $500 credit card for overdraft protection, so my cushion is a lot smaller than yours. It has been useful on occasion when the math was slightly off.
That’s great you have some kind of buffer in place, Jack. $500 is perfect for those occasions where you make a mistake or the timing’s off on a bill versus payday.
Your system sounds a lot like mine. I hate having money sitting idle in my checking account, partly because it creates the illusion that I have extra money to spend. Having it allocated to other accounts makes it much easier to avoid that trap.
I’m with you on this, Kate – it’s much easier to go about with a mindset that you don’t have a lot of money in your account so you don’t end up spending on frivolous stuff.
It’s really interesting for me to see how different people handle their finances. Different people have different tactics and strategies.
We use a completely different one, despite the fact we are paying ourselves first as well.
That’s why it’s called PERSONAL finance 😉
So true on the differences! That’s why the personal finance community is so great – there are so many different ways to make things happen and it’s fun to read the methods that others use to make it happen. I love learning some of the creative ways of accomplishing different tasks that others put out there.
I follow a similar “system” with my credit union and online bank, but I do keep a bit more cushion in my checking account. You’re a bit more aggressive what with “ripping your money out” no wonder some of it “jumps ship”! 🙂
Haha, I like that you went with “aggressive”, Amy – that makes it sound more positive than “crazy” or “stupid”! 😉
We use a similar process. We never actually over draft, but there are usually points where my checkbook balance shows negative (usually in the beginning of the month after accounting for all the months reoccurring costs, though they don’t pay until the next paycheck so we still do have cash in the account. Automating paying yourself makes decisions.easier.
Your way sounds a little more reasonable than mine, but what’s the fun in that?! 😉
Because interest rate have been so freakin’ poor I’ve neglected doing better with my checking account. We get deposits for a vacation rental property throughout the year. Since we don’t “earn” that money until the summer weeks when people stay, I leave all those deposits in checking doing nothing for 4-6 months. I could move them to savings somewhere and get 1% but I’m literally too lazy to do it. We probably average $10,000 in deposits at any given time, so I’m probably sacrificing about $80 a year by not doing it, but it’s just such a hassle I don’t bother.
Ha! I’d be after that $80 in a heartbeat… 80 bucks is 80 bucks. On the flip-side, I spend too much of my time chasing after small dollar amounts like that. Guess there’s some good and bad to both methods. 🙂
Great costume at FinCon. Shame we didn’t get to chat, but you were pretty tied up. Maybe Orlando.
The title of this post caught my eye and I HAD to check it out.
What an idea! It’s awesome! Back in the day of overdraft penalties, this wouldn’t work, but now. You are rocking it, like the Shorter J. Money version that you were at FinCon.
This one is definitely going in the next Terrific 10 at Money is not Taboo.
Looking forward to more good stuff.
All the best from Texas! Shin
Thanks, Shin – we’ll definitely have to meet up in Orlando!