Wednesday, January 30, 2008

2,633 Reasons Why Fees Are Bad

Over the first couple weeks of this year I took a look at some of my spending over the course of 2007. I was always struggling, living paycheck to paycheck. A big reason for this was overdraft fees on my checking account at Citizens Bank. My checking account would be down to $5.37 and I would inevitably take out $60 before the end of the month rolled around so that I could go out, buy food, booze, or whatever, and I would go into the negative. $38 overdraft fee. For a while I just thought "Eh, whatever. If they'll float me some money for a while that works out fine for me." It got to the point where I would routinely be $200 or more in the hole by the time my new paycheck was deposited. I was playing catch-up every two weeks, and it was a vicious circle. I would get my new paycheck, pay off $200+ in negative balance, have that much less to work with for the next two weeks, and then overdraw my account again. I knew what I was doing, and I knew it was crippling me financially, yet I kept doing it. The fees were ridiculous: $38 every time the account was overdrawn (whether it was by $1 or $100), then additional service fees if a negative balance was carried for more than five business days (which it was, quite often). I think the worst it got for me was when I was $400-500 in the hole, probably half of which were in fees.

So I went back through my bank statements over the last 12 months and tallied them up, every single charge:

$2,633.

Two thousand, six hundred and thirty-three dollars!

Typing this makes me physically ill. Do you realize how much money that is? I do not even want to tell you how much money that represents as a percentage of my annual income. What else could I have spent that money on? Let's see:

If I had opened an IRA in January 2007 I would have socked away 65.83% of my annual contribution limit.

$2,633 works out to about $219/mo. If I had put that in a savings account at 4% interest every month since 1/07 I would have had that plus an extra $53 right now.

It could have been about 87 dinners at my favorite restaurant.

It could have been about 19 1/2 months of student loan payments.

It could have paid off about 81% of my current credit card debt.

It could have paid for my airfare to Hawaii to attend my good friend's wedding last September, which I had to miss because I did not have the money. This kills me.

It could have been about 27.7% of the debt I currently owe to friends and family.

It could have been new clothes, shoes, movies, music, wine, fine liquor, cigars, dates, treating my friends, a new hard drive, travel expenses, bigger and better Xmas presents - in short, it could have been anything, whether a frivolous spend, debt reduction, or wise investment - and it would have been infinitely better than wasting that money on Citizens Bank.

Never again.

Money mistakes have emotional as well as financial costs. These can have a lasting impact. It was essential for me to take stock of my situation, realize what I had done, take responsibility for it, and plan how to avoid it in the future. I think this is necessary for anyone trying to improve his financial situation no matter what the particulars are.

(NB - While I do think that the overdraft fee system at Citizens Bank and other "brick and mortar" banks (Use online banks! No fees!) are obscene, predatory, and unethical (banks raked in over $19 billion in overdraft fees in 2007), I take full responsibility for my incurring all those fees. The irresponsibility was mine and mine alone.)

1 comment:

Cornelius said...

Yes those fees sure do eat up the money don't they.

Good to see you are making change with your finances.