How to Avoid Overdraft Fees Using Cash Flow Management - Part I

But as a tool, it can be remarkably useful for avoiding bank fees, especially for those who have little in savings and are living paycheck to paycheck. 

Do you want to know how to avoid overdraft fees by making simple tweaks to your financial habits?  If so, read on!

To start, let’s define cash flow.  (Don’t worry - we’ll use plain english)

What is cash flow?

Cash flow describes how much money goes into your bank account and how much goes out. Cash flow can be measured on a monthly, weekly, or daily basis.  At any given point in time, you can be in one of the following three cash flow states:  Negative, neutral and positive. 

What is cash flow negative, neutral and positive?

If you’re living paycheck to paycheck, with your income barely covering expenses and little in savings, hopefully, your monthly cash flow is neutral, meaning that there’s an even amount of money going into your bank account and out on a monthly basis. 

If more money is going out of your bank account than in, you’re cash flow negative.

And the best-case scenario for last, If less money is going out of your bank account than in, you’re cash flow positive.

Simple right?  Well, kind of. 

For the complexity lies hidden in time. 

How you can still be incurring $100s in bank fees while cash flow neutral 

On a monthly basis, in summation, you may be balancing your income and your expenses.  But on a weekly basis, you might actually be shifting between cash flow negative and positive states.  That’s fine if you have a positive balance in your bank account.  But what if you don’t? What if you’re always near $0 because you live paycheck to paycheck?

To illustrate, take the example of John, who has a biweekly income of $1500 and monthly expenses of $3000. He has no savings and lives paycheck to paycheck.  While theoretically, John shouldn’t be incurring any bank fees because his income and expenses balance out, he still finds himself incurring three to five overdraft fees every month.  How is that possible?  

Let’s take a look at John’s monthly cash flow:

John’s expenses are as follows:

For illustrative purposes, let’s keep expenses to three items.

In W1, John is cash flow positive. He has chosen to pay his rent ($1400) in W1, leaving him with $100 in his account. A wise move as this $100 creates a buffer against potential overdraft fees, which can be triggered by even the smallest of transactions that land your account balance in negative territory.

In W2, John is cash flow neutral. Nothing is going into his bank account and nothing is coming out. 

In W3, John is cash flow negative. More is coming out his account than is going in. His bank account balance is now $0.

In W4, John is cash flow neutral. His bank account balance is still $0.

What’s wrong with the above?

In W3 and W4, John, by keeping his bank account balance at $0, is actually exposing himself to the risk of incurring bank fees. 

How can John’s situation be improved?  What if he shifted all his bills to W4?


With no expenses being drawn until W4, John now has protection against any potential bank fees. His bank account balance is deep in the positive for most of the month, and any accidental transactions that affect his balance won’t automatically trigger a $35 overdraft fee. 

John’s example is of course an oversimplification, but shows the power of cash flow management and how one simple change might help you avoid hundreds of dollars in bank fees. This tactic also works for those with inconsistent income. Simply delay for as long as possible any expense payments that you have. At Harvest, we’d be more than happy to help you scope out a cash flow management plan or share other tips on how to avoid overdraft fees.

In short, cash flow management can help keep your bank account balance as high as possible throughout the month, which minimizes the number of bank fees that you will incur. 

How to delay your expenses

Here are some ways to maintain cash flow neutrality, which can be a challenge if you have inconsistent income and expenses. 

In conclusion, if you’re someone with minimal savings and live paycheck to paycheck, try to delay as many of your expenses as possible to minimize your bank fees. Ideally, try to maintain cash flow positivity or neutrality in the first three weeks of every month, which ensures that your bank account balance is as positive as can be. In Part 2, we’ll be delving into detailed examples of how this approach can be put to the test in and explain in more depth about how to avoid overdraft fees and other pesky bank fees.

There’s more to avoiding bank fees, of course, such as monitoring for transactions that put your bank account balance in a negative state and then preventing further transactions from processing beyond that point, but that’s a topic to cover for a different article. 
Cash flow management can be a complex topic. 

About the Author

Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.

Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.