The 1 question to ask about $1,300 in overdraft fees

69 Comments

I was having breakfast with someone today who told me the most interesting story. He had been dating his girlfriend for two years before they talked about finances. “It took me that long to get her trust,” he said. She was a public school teacher, so she didn’t make that much money. When he looked at her finances, he noticed that she had a lot of overdraft fees. He asked her to guess how much she had spent in overdraft fees. “About $100 or $200?” she guessed.

It turns out that her overdraft fees totaled $1,300 in the last year.

Here’s where it gets really interesting. He didn’t freak out or start yelling about how to negotiate out of bank fees. He simply pointed out something very gently: “What if you could focus on your overdrafts? If you eliminated just that fee, you’d be so much better off.”

Not set up an entire investment plan and global asset allocation. Not create a fully automated system with multiple accounts and savings strategies. Just focus on one big problem.

Now the question is…what’s your one big problem?

(Mine is eating out too much.)

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69 Comments

 
  1. My spouse, that’s my biggest problem ;) . . . posting as anonymous for obvious reasons.

  2. $820 in overdraft fees just in the past 120 days. i was hoping to see some answers in this post – i already know i need to focus on it. but WHAT do you do?

  3. My 87 Jeep. Its not intentional. . .but I want to keep it running and not buy a new car.

    Maybe that would be cheaper?

  4. @holly

    You keep track of your account balance, sign up for online banking to keep abreast of your balance, and don’t write checks or use your debit card for purchases when you don’t have the money in your account.

    You keep a running tally of your purchases, even in a tiny notebook, so you always know how much money is in your account.

    You build a buffer in your checking account (mine is $150) that the account will NEVER fall below. NEVER. If that means that I’m eating nothing but plain pasta with frozen vegetables for a 10 days, so be it.

    The most important thing: keep track of your balances and purchases. If you know how much you had, and how much you’ve spent, you will know how much you have left. Without keeping track of the information you’re running blind.

  5. and to answer the question:

    my biggest problem is outdoor gear. It takes a tremendous amount of willpower for me to not run down to REI and buy all the gear i want (not need), especially when they keep sending me catalogs with new climbing and backpacking gear…

  6. I was there once. For Holly, If a check is going to bounce go somewhere where you can write one big check instead of lots of little ones. I had as grocery store that would let me write checks ( I had overdraft protection) for 150.00 over my purchase. This would give me some pocket money for (cheap) lunches or other needs, needs, needs. Not Wants, NEEDS. If it’s not a need then live without it until you can afford it.
    When I was married the first time my spouse would write checks without regard to the balance in the bank. We had 400.00 in charges in one month. One check was to a fast food restaurant where the food cost 1.80 and the returned check charge was 25.00 and the bank fee was 20.00. Total cost of a burrito and a coke $46.80!!!!!!!!
    Other ideas: borrow the money – Prosper.com even at 25% it’s a lot more affordable than the outrageous charges banks and payday loans charge.
    Best of Luck to all and a reminder that tough decisions pay off in the long run!

  7. I used to do the same thing all the time … darn debit card. Between that and those awful (being kind there) payday loans, aka suck-your-soul-out loans, I was constantly behind.

    I created a budget in Excel that tracks when I’m paid and when my bills are due. It has a column for every day of the month and a running total at the bottom of each day. That way, I can highlight which days of the month (right after car payment and rent usually) I will have the lowest balance – that way I always know how much “buffer” I have.

    And once I created the spreadsheet, it was easy enough to cut and paste months, even a year or so ahead.

  8. A good book on the subject of getting control over your daily finances is “Your Money or Your Life”, by Joe Dominguez. It completely changed the way I think about money. Some of his investment ideas are a little too conservative (i.e. T-bills), but his basic premise is sound.

  9. @holly

    What Mark said.

    a) Sign up for online banking and online bill pay — I had irrational fears about this, but it ROCKS. You will be in tune with your current balance, it’s easy and saves time.

    b) Get a cheapy spiralbound notebook, a pencil, and use your ATM slips and debit card receipts to try and balance out your checking. You’re just trying to get yourself matched up with the online balance. When you forget, just pull the current balance online, and start again.

    This is a good reality check. And the low-key subtraction math helps me reflect on whether I really wanted to spend my money the way I did.

  10. @Holly

    First thing is balance your checkbook to the penny. No excuses. Do it every week. You should never doubt how much money you have.

    Second: now that you know how much you have, never write a check unless the money is in the bank and the deposits have cleared. If you bounce one check it becomes an avalanche. I’ve had this happen back before I got my finances under control.

    Third: start building a buffer, a minimum balance. When I started it was $50. This grew over time. That way if you make a math error you are covered.

    Fourth: get your finances under control. Dave Ramsey and Suze Orman have great books on this. If you are short of cash check out your library.

  11. FOOD! Nothin’ but… I believe in the old saying ‘garbage in, garbage out’ so taking care of my body is a top priority. Now my problem is how I buy and prepare food.

    I’m also an outdoor gear junkie, but over the years I have acquired most of the things I need. I’ll probably make 2-3 purchases a year for updates, upgrades and new things. Right now I’m saving for an ultralight solo tent. This is one area where I don’t buy anything cheap. Good quality gear can last a long time if it’s taken care of. Buying all your gear at once is tempting, but keep a checklist and run through it every time you go camping.

  12. Dining out…I’m sloooooowly getting better about this, but of course I’m headed out tonight ; )

  13. Concert tickets! There are a few artists that I think nothing of dropping $100 to see. Plus I go to tons of indie shows … ticket prices are cheaper than a movie but then you figure in parking (in Los Angeles) and eating out after, etc. It adds up. So what I do is have all my bills (and savings) automatically deducted very very early in the month (when I get paid) so the rest is food, gas and play money. I hate having to “budget” so automatic deductions are my best friends.

  14. Kitchen appliances from craigslist… you’d think I own so much of it now but I’m always trolling for stuff. But I just can’t resist when I find a yogurt maker for $10! and then $5! I bought them both. And then a waffle machine for $8! And a mixer for $5! They’re all little, but they add up quick. At least I have some money deducted automatically for my savings, and this is money I don’t ever withdraw from my savings. But I can’t resist the used goods on craigslist. It’s hard not to look because you never know what’s being offered.

  15. Hey there, LOVE the Blog by the way..

    I had a big problem with overdraft fees before too. My solution was too simple to admit that it took me this long to figure it out. I started keeping a check-book registry – the little log that balances the account. (Just like B. Smith) I finally realized that keeping a tally of my account was more accurate than the internet AND I had it with me always! Even the internet needs a couple days to update the info. I deducted checks out immediately even if they haven’t cleared yet, I knew that I wouldn’t spend that money on something else. I don’t even write a lot of checks but I have a debit card and it’s so easy to swipe a card. By simply keeping a log, it’s constantly and up-to-the-minute updated.

    Now that I have that under control, I need to work on giving myself an allowance of spending money each week or every other week for eating out, buying lunch, going to movies and such.

  16. Right now I am not sure if it is eating out or gas prices! However, I can top your story on the overdraft fees. Before we married my husband averaged about 200 a MONTH in fees and wondered why he was falling behind. We are much better now that I have the check book!

  17. I like this story – your friend showed great judgment and understanding by suggesting she start with one manageable task.

    As for me personally, impulse purchases – that’s always my weak point. It’s so hard to pass up a great deal!

  18. I had that problem also. Occasionally, I’d deposit a check that ended up not clearing (tenants). Or I transferred money that was already set to autodraft. I admit it’d be great if I had a huge buffer but I don’t. And the rental house is an investment with risk.

    So I switched banks, went from Washington Mutual (who loves to tack on fees) to US Bank. US Bank (BTW I’m not affiliated) offers a personal reserve. It’s basically a credit account-light. You get a reserve of $500-$1000, whatever you qualify for. And whenever I overdraft my checking, it automatically withdraws from here. It has slightly higher interest but I usually catch it within a couple days and my interest ends up at a couple cents or a couple bucks with an added $2 service fee for dipping in.

    I’m sure there are better ways, keep track of your accounts, save a larger buffer, etc. But sh*t happens. And this has saved my butt more than once.

    $30 overdraft just makes me angry.

  19. [...] I Will Teach You To Be Rich » There’s one question to ask about $1,300 in overdraft fees (tags: money overdraft advice) [...]

  20. KIDS……being a divorced mother of two boys 16/10 on one salary makes it very difficult at times. No father relationship or financial contribution from him since he would rather drink/drug his money(his loss more than mine), and it seems like they always need something whether it be for school, school projects/field trips, schools sports, school sports banquets and gifts for the coaches, new clothes, school uniforms, SHOES, friends birthday parties, social outings for the teenager, the newest PS3 games, and the list goes on……….I do manage to have a home with lots of equity as well as a 403B I contribute 20% of my pretax salary to with a little $$ in it, but that is for retirement. Yes, I suppose the teenager could work now, but I send him to a private catholic college prep high school(on a 50% tuition assistance) and consider his job school and after school clubs and sports. I think this is more important right now than him working at the local market or fast food chain for a few bucks and too sleepy to perform in school. I feel the only way I will get ahead is when my kids are college graduates/successfully employed and out of my home. Kind of sad, unfortunatley true.

  21. My big problem in the past was letting little bills elude me. I’d get around to them eventually and some were charged off. Luckily it was not more than $1500. and I made it a priority to get my credit report and make a plan to pay them off all at once.

    They are still on my credit report but they are listed as paid and I made sure the companies made notes on my CR. It really helped my credit score a lot. Now I have great credit just handling that small about of debt.

    Great post. Focus on your big money problem, correct it and never do it again!

  22. Personally I think in a case like this getting overdraft protection might be in order. Sure there are fees involved, but they are a lot less than the fees of overdrawn checks. Someone who is having problems dealing with their money issues is going to have a difficult time becoming a checkbook balancer overnight — I’m saying this from experience.

  23. One big problem: I live like I make seven figures…but I make five.

  24. Sassycajun – It seems more like your problem is your desire to “keep up with the Jones’s,” not the kids themselves. It’s admirable that you want to give your kids everything, but perhaps you can consider what is really valuable for them in the long run.

    Further to Nick’s comment, a forward-looking budget that anticipates the next month or two of expenses and income has been incredibly helpful for me. I keep mine in Excel as well, and track when I will pay each bill, estimate how often I get gas, groceries, etc. As time goes on, I replace the estimated amounts with actual amounts (by logging receipts), so I always have an accurate number for what is in my account and how much I will have for the next month or so.

  25. thanks so much for making me feel like at least I’m not alone in the overdraft fee world. Seems like once I got behind, I just couldn’t catch up. It amazes me that here I am saying that I can’t afford this or that (like savings or retirement) but yet I’m WASTING money EVERY MONTH on fees! It comes right down to “are you sick enough of it to really get serious about the problem?” Thanks for helping me get to that place?

  26. The daily Starbucks habit, overdraft & late fees, driving when you could walk, shopping when you are bored or always finding a reason to defer signing up for your company retirement plan. They are all hinderances for people to get ahead…and for the record, doesn’t everyone know that bouncing a check is literally a crime?!

  27. The best way to avoid overdraft and bounced-check fees is to manage your account so you don’t overdraw it. I manage my finance when I start to have my own money on the bank.

  28. I had overdraft fees galore too! I use my debit card for everything, so I had to call my bank (Wachovia) and did the following:

    1. Send me an email notification for when my account goes below $200.00 so that I know not to spend any more from that account to avoid overdraft fees.
    2. I also asked them that should I get down to $0, that to not allow the purchase to go through and decline it.
    3. Sign-up for overdraft protection, I had a credit card I barely used that I forgot about it, and it has much lower overdraft fees once you sign-up for overdraft protection.

  29. I like the idea that focusing on one area of unnecessary spending like an overdraft fee may be less overwhelming for some folks than trying to tackle all of their financial issues at once. However, it’s not clear how much of her problem with overdraft fees is related to her overall financial situation. If she spends more than she is earning on a monthly basis to pay for her necessary living expenses, then it’s not going to be easy to tackle that problem.

    By the way, to everyone who thinks they have to give up lattes to be on a budget, you don’t. The next time you get a nice cash windfall (and assuming you’re already saving for retirement, building an emergency fund and don’t have significant credit card debt) go out and buy yourself a good quality burr coffee grinder (I recommend Rancilio Rocky) and a good quality espresso machine (I recommend Rancilio Silvia). You can have better coffee every morning than you’d get at Starbucks and it pays for itself. Total cost for both machines together is around $850. I bought both a few years ago and I’ve never regretted it. The Rancilio Silvia will last for a long time and keeps much of its value over time.

  30. I use 2 methods to keep track of the expenses. One is my 1 – 31 list. An entry for every day of the month showing what is going in and what is coming out, ie Wages, Share Div/Interest, Mortgage, Car, Direct Deposits for the Electricity or Gas or Rates. The other things is a simple monthly reconcilliation list of all presented and unpresented cheques. The mental balance I always have of the cheque book is always the balance including all unpresented cheques – treat all cheques written as if they have been cashed on the spot.

  31. Amazing how some people cannot use simple logic. They say things like “I have to bounce checks, I have no choice.” And yet, they made the choice earlier. They take their paycheck and the first thing they do is throw away at least 25% on the previous periods checking fees, starting off behind. First task – catch up all bills and build a small buffer. This may require a small temporary loan from a relative. Second task – respect your money. Plan its use. Some people hate the word budget. Just plan how to use your money, then stick to it. Third task – change your money method. Checks are written only for mailed bills. Everything else should br paid for with cash. No excuse for throwing away money on fees. I have had to help my 17 yr old daughter, my ex-wife, my 26 year old little brother, and my current girlfriend out of similar situations in the last 3 months.

  32. (Mine is eating out too much.)
    Get married Ramit :-)

  33. Who says getting married is going to get him warm homemade meals?

  34. @ Kam

    Getting married doesn’t necessarily guarantee homemade meals, but it is much easier to cook at home for 2 or more than it is for just one. When cooking for one, its all too easy to resort to eating out more, or eating frozen convenience foods, both of which are hard on the wallet, and the waistline.

  35. I had a personal PO box across town for probably 15 years, yet lived in one place for 13 and have been working from my home for the last 5. Which means I’d been wasting close to $100 a year in box rental plus a gallon of gas and a 1/2 hour of time per visit, even if the box was empty. Looking back, that’s a lot to pay for unnecessary privacy.

  36. Mine is also eating out too much. Some months I spend about $200 on eating out.

    I’m good on everything else, at least. I don’t waste money on most things. Just eating out. I’ve gotten better though. :)

  37. My tip — for god’s sake, stop living paycheck-to-paycheck. Get a great budget program called YNAB (You Need a Budget). I am not connected with the YNAB people in any way; I just have been using the program for 2 months and love it.

  38. CASH… Use only cash exept when paying bills. Pay all bills first. Take out only the cash you can spend and don’t carry the check book or debit card. When this becomes habbit, no more overdraft fees. Viola`

  39. i would break up with that girl.

    my biggest problem is I dont know what to spend my money on. im a cheap bastard that 90% of my salary is saved every month without any efforts

  40. I married an indian girl thinking i would get hot meals at home…i was wrong. indian girls have white friends and pick up fast on that.

  41. I came in here to say the same thing the first commenter said. Um, but she’s not my spouse yet.

  42. Eating out is my big problem as well. I love grocery shopping, and home cooked meals are always better, but I seem to always fall to the convenience of the drive-thru or being served at a restaurant after a long day.

  43. We had the same issue in my household only worse 2000 here for 07… wow frustrating, I tried yelling and that did not work, we talked and that did not work… it was basiclly poor planning and trying to bet on if the bank was going to cash a check to the grocery store for 100 before payday, and many times we had $ in my account she just would not let me know she might need extra…
    she would get upset when ever I tried to talk with her, but finally we have reached a point where we need to be.
    the things We did to accomplish.

    1. switched everything possible to automatic payments! bi-weekly if possible.
    2. cut cable totally, rabbit ears for our TV only.
    3. checked our account daily, sometimes more!
    4. talked, talked, talked!!! every day about our finances… what was due and when, how much did we save? how much into stock or 401k… oh and talked, talked, and talked more and more!
    5. agreed to NEVER spend more then $100 without communitating with each other.
    I am very happy to say for 08 we have only had 2 over drafts, and those were very early in the year…

  44. Quit spending more $ than you have.

    An amazing idea, I know.

    You will quit overdrfting once you follow this advice.

  45. The root of this problem is attitude. Thats it. I hope banks more money from people like this and recoup their losses and make their stock prices rise. I have a vested interest in citibank.

  46. My new laptop… Can’t really afford it… Or my new sewing machine…

    I also like throwing money into my reef aquarium.

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  48. My one big problem is paying off the mistakes I made years ago. I have a large amount of debt, and while I am working full-time, and also own my own business, I still do not make very much money. I rarely go out or buy anything, but am always broke, just trying to pay off my debt. I also have child support to pay, which takes 25% of my income (which I get to pay tax on, but never actually see.)

    Every time I read about cutting down on expenses, it’s always things I’ve already cut out. I don’t eat out much, I don’t buy coffee every day, I don’t go out to bars. My money all goes towards my bills and debt and I never have any left to get ahead in any way.

    It’s pretty damn depressing.

  49. Answer to bank fees – use CASH!!!

  50. coffee….and eating out

  51. MY SPOUSE also she donesn’t want to balnce a checkbook I don’t even think she knows how and every checking account we have had together has been closed due to isf shes crazy

  52. If your going to go in the red…take out a bunch of money at one time and get just one overdraft fee. I have been trying to teacj my mother-n-law this for a couple years now. Still doesn’t get it. How about over $2000 on OD fess last year, in addition to the daily fee that is imposed for being in the red. It’s so irritating to see someoen get a $29 OD fee….for a $3.00 purchase. I’ve turned my finances around…just takes discipline. I use excel and log all bills in there…I keep a running total month by month… with balances, interest rates, credit limits, etc…and create a graph to better help me know where the problem is and what needs to be paid off. Ex. I finally just paid off an IKEA account…had a balance for a few years…and have no clue what I bought with it. I’m rambling…if you want some tips on what I did I’ll be happy to talk. No I am not selling anything or nothing like that…I am married, live paycheck to paycheck…have kids….and slowly take the credit cards out of my wife’s wallet so she doesnt get tempted. lol

  53. My problem is going for a more expensive alternative when a lower priced option is just as good and costs less. For instance I have to have organic food. It costs nearly twice as much as the other food, yet its pretty much the same thing. We all have our little addictions.

  54. @xmasy

    My wife made it clear I didn’t make the same misjudgement: I am the one tasked with cooking. :P

  55. My biggest problems are high interest rate mortgages that are eating everything alive and causing my credit scores to plummet so that I can’t refinance even if I wanted to. Which I do. But can’t.

  56. I used to have that problem with overdraft fees and then I started to spend less and put everything on a credit card (no overdraft fees plus I earn interest on the money sitting in my checking account). When you make about as much money as you spend, looking at your bank statement and seeing all those silly purchases helps you to realize you’re wasting money on stuff that doesn’t matter.
    Then I started sinking money into keeping my car running. I took a year off from school and saved to buy a newer one which has been pretty reliable.
    Then my pets started getting old. I’ve had a few medical issues with them that added up to over $1,000 per illness. I got pet insurance for them, so even if I have to pay a whole lot, I usually get back 25-40% of the bill from insurance (for $70 a year, it pays for itself).
    Now my only problem is my stocks keep sinking lower and lower. Investing long term is painful right now.

  57. My big problem: I don’t bring in enough income each month. I am an independant contractor who is going back to school to complete my BS, and I have one more year to go. I have streamlined my spending a lot, but I still just don’t bring in enough cash each month to start building a savings. It drives me crazy! I don’t have the large amounts of OD fees, but twice a month, I get really close.

  58. Before I got married, we went out to eat some, but after we bought our house, we began cooking at home almost every night. And you think this will save you money?? Fortunately, we already owned all the kitchen apparatus and an extensive cookbook library. But have you ever shopped for quality ingredients? If you’re making anything interesting, it costs a small fortune! Also, I defy anyone to go to the grocery store for one or two ingredients and not leave having spent $50.

    My greatest weakness? Buying stuff to make things. I knit, sew, quilt, spin fiber, dye yarn, cook, make jewelery, etc. and I’ll swear that the part of my brain that would normally notice how much things cost, shuts off when faced with the supplies for the project I’m about to undertake. Truth be told, I don’t want to know if I’m that close to getting my crafty fix.

  59. I found the best way for me to deal with my budgeting problems (overdraft fees and having no idea where the little money I had went) was to install a personal finance program on my blackberry. Since I’m a Crackberry its actually mildly entertaining entering withdrawals and deposits along with other info.

    My Blackberry is more current than my bank account as I use my debit card for most purchases. Previously I would check my account online to be told I had “X” amount available, then I would spend “Y” amount. I would then find out a “Z” transaction had gone through. X+Y+Z=lots of overdraft fees!

    I now check my balance on my phone before checking out at the register or ordering food. And then immediately after getting the receipt I enter the info.

    The result is that I am no longer paying overdraft fees (huge banking scam there!) and I now know where my money has gone to and have modified several “bad” behaviors i.e. eating out constantly.

    There are several third-party personal finance programs for smart phones and as soon as iPhones 3rd Party software program begins I’m sure there will be one available for iPhones. Be sure to understand the privacy and security issues with using these programs (if your phone gets stolen, hacked, etc…).

  60. I am surprised many didnt know about the overdraft protection for your checking account. If you have both checking and saving account with same bank, this should be a no brainer.

    KCDesi

  61. I cook, my wife doesn’t. Although its really more of a defensive measure on my part. She has cooked in the past with negative results.

    As far as cash management, I’ve always kept a base amount in the checking accout to avoid overdrafts due to minor errors, plus keep a list of what is due at the start of each pay period (and another list of what has been charged on credit cards over that previous period) so I can be sure all bills have been paid on time. The first name on the list is Vanguard, so the investing is taken care of first.

  62. I have to say the best things I have ever done financially are:
    1. Getting a grasp on my own checking account.
    2. Avoid carrying cash or pulling money from the ATM unless it’s absolutely necessary.
    3. Start investing

    I had a habit of using my debit card all week and then wondering where the heck it all went. I setup a simple Excel spreadsheet and kept every receipt. Each night I sit down for 5 minutes and enter every transaction into the Excel log. Once a week (if not more) I login to my online banking to make sure it balances out. I always know where my money is going. It’s also good to enter in your monthly bills and automatic payments, so you’ll know what’s coming down the road. It doesn’t have to be fancy, just a few columns for date, description and amount. Once you have been doing this for a while, you can create a chart or graph every once in a while to see just how much you’re spending on gas, food, etc.

  63. As for the overdraft fees – switch to a credit union and get a checking account that has overdraft protection. Credit unions (at least in my experience) charge fewer fees, and overdraft protection just hits you with an interest charge rather than a $40 fee. Since I work at a nonprofit, am aggressively paying down debt (credit card debt will be gone this month!), and am trying to save, I am paycheck to paycheck in a sense. Those times when I go a couple of dollars over just before the next paycheck comes in, I end up paying a dollar or so for triggering my overdraft protection rather than a hefty fee. Still not the best planning, but a much cheaper alternative.

  64. Just found out I will have $300 in overdrafts by midnight tonight even though the money was deducted just after I had deposited a hefty sum into my account. Has this ever happened to anyone: Overdraw the account, make deposit within hours of the overdraw, and then get charged NSF fees immediately after the deposit?

  65. First off, I’m new to the “personal finance blog reader” game, and I love your site. I’ve bookmarked several articles to read over and over, as my brain starts aching if I think about finance too much in one sitting :)

    In regards to this topic, I’ve had my fair share of overdraft fees over the past few years. I do silly things, like buy stuff that I definitely don’t need, and then I get to pay much more to my bank. I’m sure that my bank just loves me. [sigh]

    Anyway, my spending weakness is for Japanese stationery and plushes. I don’t mean Hello Kitty; I mean hard-to-find, weird designs like pancakes with faces. It’s horrible to spend money on such impractical things, but I do it anyway. I ‘need’ my cute fix. I’ve been fortunate (I suppose that’s the right word) to have a ‘built in’ fear and distrust of credit cards, so I’ve not yet had one (I’m a month away from being 24). I love not having any debt, but I’m definitely not a saver, and really, really need to become one. I know that credit-when handled responsibly-is important, but I don’t feel ready to have that responsibility.

    Thanks again for the site!

  66. Love the blog as well. I find my biggest problem is also going out. You get a round of drinks for friends and you’re easily looking at $100 every other Saturday night.

  67. I know this is late, but I found that after I opened a business bank account, my personal account turned into a business owner’s free checking, which made it so that i never get overdraft fees, or pay interest on the fees either.

    I have since become much more financially stable, but there was a time when I was definitely overdrafting my account frequently, and it was pretty irresponsible. Opening the business owner’s account meant that I never had to pay that money again.