If you’ve come this far in the 8-part series of “How to Build Wealth from Nothing,” you’ve first understood how to build wealth and track it along the way and hopefully recovered a decent chunk of change from Step II. Now that you are on the right track with a solid foundation, it is imperative to understand how to prevent financial blindsides that can eat away at your financial health with lasting impacts. Much of what we’ve witnessed when it comes to preventative measures relate to financial expenses that seem small by themselves, but can add up substantially over time.
You may recall the stat that the typical American pays over $720 every year in bank fees alone. While the occasional overdraft fee here or monthly maintenance fee there may seem small in the big picture, the effects are huge. Remember what we said about building wealth takes time? Well, the opposite can work against you as well. Just looking at bank fees alone, $720 adds up to $7200 over a 10-year time period. Not only that, but this wasted expense also represents the opportunity cost of what could have been done with that money instead. So instead of spending $7200 on bank fees, you could have saved that $7200 instead. In this instance, that represents a total net worth difference of $14,400 simply from avoiding bank fees altogether. But how can these fees be prevented?
The simplest way to avoid bank fees altogether is to switch banks. There are many banks, typically modern mobile-first banks, that offer accounts with very little or no fees at all and still retain all of the necessary functionality that you need in an account.
If you do not prefer switching banks, then there are several tactics you’ll want to employ to ensure you don’t get charged. For overdrafts and NSF fees specifically, you’ll want to employ sound cash flow management practices to your monthly finances. Cash flow is simply another way of illustrating the inflows and outflows of money on your accounts and how they affect your budget and fee burden. For example, forgetting about the exact date of a recurring payment is one of the most common causes of overdrafts. We cover how to avoid overdrafts using cash flow management in-depth in a separate two-part series here.
Knowing your available balance on a consistent basis can also do wonders for avoiding overdrafts. This is often easier said than done especially if you have multiple accounts but this can also be completely automated. Often times you can turn on low balance alerts from your bank and many banks (especially mobile-first ones) will send you a notification after each transaction with your available balance. If your bank does not offer this, you can use services such as our smart money notifications which will text you every time your account dips below a certain threshold so you can be confident when you spend your money.
Lastly, you really should want to do periodic audits of your recurring payments. The average American spends $237 per month (!!!) in subscription fees. That’s $2844 per year and $28,440 over the course of 10 years! It’s imperative that you understand exactly how many recurring payments you have on your accounts and frequently check to ensure that no additional ones show up over time. There are countless vendors today that start to charge for their services after an unclear trial period or when a certain condition is met in order to sneak their way into your statements. And it’s one thing to keep track of recurring payments for yourself, but if you have children who use your phone for example, many times they may unknowingly cause additional subscriptions through in-app purchases and entertainment subscriptions. Individually, these subscriptions and recurring payments can appear small, but they can slowly add up to large amounts over time and significantly hamper your ability to increase your net worth. Our platform has a comprehensive recurring payments tracker that finds all of your monthly recurring payments and is updated on a daily basis. It will also determine which of your recurring payments may have been the cause of an acute debt like an overdraft fee or NSF fee. In Step IV of “How to Build Wealth from Nothing” we’ll discuss the ins and outs of spending discipline and budget adherence and how it can drastically improve your net worth.
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.