This post by Little House from Little House in the Valley is part of the Yakezie blog-swap.
My Scariest Money Mistake, and What I Learned
“What do you mean my card doesn’t work?” I asked the cashier in a high-pitched, worried voice. Astonished my debit card was being declined, I began to panic while blood rushed to my head. I left the convenience store empty-handed, upset and confused.
Learning that my bank account had fallen over $330 in the negative was my scariest money mistake I ever made.
How did I get into that predicament? I had been barely scraping by living pay check to pay check. With two people swiping debit cards from one account, it was hard to keep track of how much we had spent in any given week. One moment I’d check my bank balance and there seemed to be just enough to cover our expenses, and the next it was in the red.
Each time a single charge would be declined, my bank would tack on a $30 charge. If ten charges were declined (yes, this happened) the penalty was $300. By the time I’d deposit my pay check, one-third would be applied to overdraft fees I owed the bank making it difficult to get caught up. The most ridiculous part about our overdrafts was that many of the original charges barely added up to $50 with most of the individual amounts ranging between $1.50 to $6.50!
I soon learned that “debit” and “credit” charges were not equal when it came to a debit card. Trying to get to the bottom of my overdraft fee cycle, a very helpful bank associate listened to my tearful story and explained the difference. (This same associate also credited our account $200 which made my day!)
A debit charge on a debit card works similarly to an ATM withdrawal; you punch in your PIN at the terminal and the money immediately leaves the bank account and is recorded as such. However, if you use your debit card as a “credit” card (you don’t use your PIN, you just sign the receipt), the charge could take up to five business days to reflect on your account balance.
My “A ha!” moment had arrived. We had been using our debit card as “credit” and many of the charges would post days after usage which meant we really didn’t have as much money in our account as I had thought.
We made a plan to correct our behavior; we only used our debit card as “debit”, this way I’d know exactly how much money we had in our account. No more living on “borrowed” money we didn’t have.
I also began tracking our income and expenses in Quickbooks to get a handle of where our money was being spent. We were still cutting our expenses close to our income and we needed a plan to reduce our bills.
I set up an overdraft savings account, as advised by the bank associate, and linked it to our main bank account. We kept a minimum of $100 in that account to avoid a $2.00 charge costing us $32.00.
As I began to get a handle on our finances, I also opened up a savings account for rainy days and emergencies. Having a cushion of cash made me less anxious and I felt more in control.
Thankfully this memory is over a decade old, but those same, nervous feelings still bubble up when I think about how ignorant we were about our finances back then. Understanding banking terminology and creating a budget were the solutions that directed us towards financial stability. Too bad I had to learn the hard way!
photo credit: freedigitalphotos.net
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