Stop ending the month overdrawn

An overdraft costs more than you think

An arranged overdraft is often charged at 8 to 12% a year, sometimes more, with a fixed fee every time you go over. It is one of the most expensive forms of credit there is, and the quietest.

A permanent 200 overdraft costs around twenty a year in interest; but it is the fees for going over, 10 to 20 a time, that make up the real number.

Look at the calendar, not the total

Over one month, write down the date each bill is taken. In most cases rent, insurance, phone and subscriptions all land in the first five days — while the salary arrives on the 25th.

The problem then isn't the size of the month, it's that 80% of what goes out arrives before 20% of what comes in.

The four levers, in order

1. Move the payment dates. Most companies will change the date if you simply ask. Spreading them over three dates instead of one often removes the dip on its own.
2. Take the bills out of the current account. A dedicated account for fixed costs, funded on payday. What stays in the current account is genuinely available.
3. Build a one-month buffer. Not savings: enough to live one month behind. That is what breaks the cycle for good.
4. Cut back, only afterwards. Cutting spending before fixing the calendar is treating the symptom.

The revolving credit trap

A recurring overdraft often ends up being « solved » by a consumer loan or a credit line. The rates there are higher still, and the monthly payment adds to next month's bills: the dip comes back, worse.

If you are at that point, the first move isn't budgeting: talk to your bank before the next time you go over. An arrangement always costs less than a pile of fees.

And if the income itself is irregular

Moving the dates isn't enough: you have to manufacture a stable salary. That is exactly the method described in budgeting on an irregular income.

Common questions