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Worse than sipping a warm coffee by the fire with your wife and 1-year-old daughter right before Christmas time and realizing that I somehow paid my mortgage twice in the month of December is… Waking up April 1 and seeing during the morning status check for our bank accounts that our personal checking account had some lint immediately to the left of the 4-figure number. Wait, what? That “lint” isn’t moving off my phone screen. It was right then when I saw the “Bank Overdraft” alert pop up…
Confusion and terror overcame me all at once as I began soul-searching to see how I could’ve sunk to this new (balance) low.
And it was a Saturday, which meant that even if I could get to my bank that day and deposit some newly found funds that totaled more than the 4-figure sum… those dollars wouldn’t post to my account until Monday at the earliest. In fact, It’d probably be Tuesday before the balance would show anything new.
WTF?!?! WTH(eck)?!?! (I just learned that our priest has discovered my blog… going through and censoring 289 posts is quite the task, let me tell you…)
But you know what… It’s been my experience that making financial mistakes like this one tend to produce more than a few teachable moments.
Photo courtesy of Al Emmert
Which is to say that I typically learn things from my bone-headed financial mistakes
- There was the time I paid the mortgage twice in December (referenced above)
- I leased a BMW 128i on a graduate assistant’s stipend ($20k annually)
- I lost 66% of our net worth in the market crash of the Great Recession
- And we nearly went bankrupt while we tried to buy our business and then immediately move the office…
“Sure, I’ve learned a thing or two because I’ve seen a thing or two.” J.K. Simmons (in the Farmer’s commercials)
So, as soon as I realized I had made this mistake, I went right to my notes to write down the lesson learned. I jotted down an outline for the post below…
Then I went to work trying to make sure the bank didn’t take our house.
When you Wake Up to a “Bank Overdraft” Alert
(I’m going to stick to my personal course of events, which happen to be what I’d recommend you do in a similar situation. But keep in mind that there’s more than 1 way to overdraft an account…)
Step 1 – Figure out what got you to this point (and, ideally – fix it)
I’m not sure your level of readership at MikedUp Blog, but if you’ve been with us for a little bit, you may remember that my wife and I recently bought a dental practice. Since that time, we were hit with a surprise 2-weeks notice from one of our star employees and I subsequently quit my cushy government job to fill the position at the office.
“Did that cushy government job pay a $70k annual salary and also happen to pay for our a large portion of our health insurance and a good chunk of my retirement?”
Man… You must be well informed because “Yes” to both.
And I know what you may be thinking… “They lost the paycheck and couldn’t make up the difference.” But strike 1 for you, my friend because I’m still in the payroll system at the old job (1 paycheck left as of this writing – gotta love unused leave balances!!)!
But there was one minor detail with my most recent paycheck that I completely forgot about – it was going to be mailed to me and not direct deposited.
Here’s how it went down:
- March 29 (Friday) – The “expected” day that I would’ve gotten paid my pen-ultimate paycheck
- March 30 – The mortgage would direct deposit from our account ($2k-ish)
- March 30 – Student loans would direct deposit from our account ($2k-ish)
- March 31 – I had written checks for quarterly bills that posted this day (think: insurance, water bill, etc – $1.5k-ish)
- March 31 – Panic-ensuing morning status check
Some quick notes: 1) Yes I still write checks and I love it, 2) There are great benefits to automation, however – this is not one of them (I should’ve kept better track of all automated payments and deposits), and 3) If my paycheck would’ve deposited when expected, the funds would’ve covered those bills/payments (I’m not making excuses, but there’s one if I need it…)
So – because my paycheck didn’t deposit when I expected it to, our account was overdrawn by about… oh… $1,352.67…
Yeah – My Bad.
Step 2 – Get funds deposited into your account to earn a positive balance
Luckily for me, the paycheck that hadn’t direct deposited into our bank account was in my mailbox when I checked on Sunday morning. I was then able to use the mobile deposit function of my bank’s app to get that cash processing into our account.
Although the deposit wouldn’t “post” to our account until Tuesday at midnight, at least there were funds moving into the account. That was my first priority.
My second priority was to scrounge up some cash we had saved for a rainy day so that I could get our balance into the positive on Monday rather than Tuesday.
Why did this matter?
Because although my paycheck would post to our account until Tuesday (because it requires at least one business day to process), neither would the direct deposits or the checks I had written to utilities and other bills. So while we were projected to overdraw Tuesday, it was up in the air if some transactions would post before others.
Depositing cash, on the other hand, is instantaneous
Give $500 to the teller to deposit into your account – it’s posted 30 seconds later.
I realize that this may not be an option for everyone – having spare cash lying around in case of emergency. But maybe this is an opportunity to learn from my mistake.
I’ve found that in times of severe crisis, knowing that you have $500 or $1,000 cash in a secure, easy to access location can be extremely useful and calming.
Saving money is not always the simple math problem of, “Which account will yield me the greatest return?” Sometimes having the security of liquid cash on hand trumps a 2.2% APR of your favorite high yield savings account.
Step 3 – Find out what options you have with your specific account when it comes to overdrafts
For us, our bank offers a 1-day grace period for overdrawn accounts (thank, God). So if all our payments had posted on Monday, I technically had until Wednesday morning to get cash into the account.
But there are other accounts that don’t offer a grace period for bank overdraft situations. In these situations, you need to be aware of potential overdraft fees, accruing interest, and other penalties.
Because it’s impossible to cover the terms of every high-profile bank account in the world, I’ll point you to this Nerdwallet article which discusses the cream of the crop (as they see it).
Step 4 – Beg for forgiveness and promise to never do “this” again
When I went into our bank’s local office, I asked all the questions surrounding overdraft situations.
- What is the penalty? $35 after the grace period as a one-time fee for a week
- What happens after the first week? Additional penalties would kick in
- Well, what about after those penalties? Basically nothing good
While the teller at my bank put me at ease right away, I was prepared to beg, negotiate, and argue to get any potential fees waived. Turns out I was lucky.
If you were faced with a similar overdraft, would you be prepared to react and what would your bank do?
Up until this mistake, I couldn’t answer this question. I’d encourage you to find out for yourself before you make the same misstep I did.