Managing your bank account can be overwhelming at times. It’s easy to make mistakes, and even the most experienced can overlook the finer points of banking. But these missteps can come with hefty consequences, affecting both your short-term and long-term financial stability.
There are several common mistakes you might make with your bank accounts. These include paying unnecessary fees, neglecting to open a savings account, not separating personal and business funds and failing to keep track of transactions.
You could also leave yourself vulnerable to fraud by failing to take proper safety precautions. It’s important to remain vigilant so you can avoid unnecessary financial strain.
Financial professionals told Bankrate about the worst banking mistakes they made and how they recovered. They also provided tips on how to avoid these missteps.
Banking mistake: Not keeping track of transactions
Adam Horvat, director of finance at Digital Silk, is one person who didn’t keep an eye on his bank account. It was a mistake he made years ago, but he’ll never forget it.
“One of the worst banking mistakes I made early in my career was neglecting to regularly monitor my commercial bank account balances,” Horvat tells Bankrate. “This oversight resulted in a sizable check for a critical purchase bouncing due to insufficient funds, placing the company in a precarious situation. The problem was resolved, however, by setting up an overdraft protection facility and working on immediate capital injection strategies.”
How to avoid this mistake
Keeping an eye on transactions will help you avoid overdrafts and reduce your chances of becoming a fraud victim. It’s important to get in the habit of tracking your expenses.
“My key piece of advice is to diligently review all transactions and account balances to catch any potential issues before they escalate,” says Horvat. Automation tools can also prove remarkably helpful in providing real-time updates and alerts on your financial status.”
Horvat says he learned how important careful monitoring and timely intervention are when managing banking matters. This experience taught him that it’s vital to establish good banking routines. He recommends establishing a routine for both personal and business banking.
Banking mistake: Leaving your bank account vulnerable to fraud
Another mistake that could ruin your finances is being too trusting of others when it comes to your sensitive bank information. Robert Persichitte CFP, CPA, CFE, founder at Delagify Financial, witnessed the aftermath of this mistake. While assisting a fraud victim during his employment with the Boulder County Economic Crimes Division, he saw the consequences of being too trusting with bank information.
“The fraud victim unknowingly added a fraudster as an authorized signer to the account,” says Persichitte. “The victim thought the fraudster could step in if they were incapacitated and pay bills. The fraudster convinced them it would be easiest to give full access.”
“After the fraudster was listed as a co-owner, checks came out without the victim’s knowledge,” Persichitte continues. “It was difficult to reverse or even hold bank transactions because both parties had legal title to all the assets. They put their trust in someone they shouldn’t have.”
Persichitte was assigned to recover assets after what he says was a lengthy criminal case. “At that point, the money had already been spent, but we garnished the fraudster’s wages to pay the victim back little by little,” says Persichitte. “Because the transactions were technically authorized, the bank didn’t have to pay anything back.”
How to avoid this mistake
Persichitte advises using caution if you decide to add a co-owner to your bank account. Choosing the wrong person for a joint bank account could end in disaster.
“Don’t sign over your assets, ever,” emphasizes Persichitte. “Usually, there’s a better solution than transferring money to someone else. Talk to an attorney or people at the bank who can recommend alternatives. Even if they’re family, you never know how things will end. A power of attorney or trust can accomplish the same goals as a joint account but with much more protection.”
Banking mistake: Combining business and personal finances
Starting a business is exciting, but that excitement can turn into dismay if you don’t manage your finances properly. Profit Leap co-founder Russell Rosario, CPA, says he found himself in a tough spot early in his career when he commingled business and personal finances.
“The worst banking mistake I ever made was neglecting to separate my personal and business finances in my early entrepreneurial days,” says Rosario. “I kept using a single account for both personal and business transactions, leading to a chaotic bookkeeping situation. Managing cash flow became a nightmare, and at tax time, it was a Herculean task to identify deductible business expenses accurately.”
Rosario resolved his error by opening a dedicated business checking and credit account. He moved all business-related transactions to these new accounts and began tracking every expenditure using accounting software tailored for small businesses.
How to avoid this mistake
Don’t delay when it comes to setting up separate bank accounts. It’s tempting to do what’s easy, but this will complicate your finances.
“My advice to others dealing with a similar mistake is to immediately set up separate accounts for business and personal finances,” says Rosario. “Utilize accounting software to automate expense tracking and reconciliation. This will not only simplify tax time but will also provide a clearer picture of your business’s financial standing.”
How to make smart banking decisions
Avoid common banking mistakes by making informed decisions. Here are some strategies for smarter banking:
- Set up account alerts. Most banks offer account alerts to notify you of a low account balance or suspicious activity.
- Build a buffer. Maintain a cushion of extra cash in your account to protect against unexpected expenses or math errors.
- Reevaluate your bank regularly. Make sure your bank offers competitive fees and services that align with your financial needs.
- Use in-network ATMs. You’ll pay an average of $4.73 in fees if you use an out-of-network ATM according to Bankrate’s 2023 ATM Fee Survey. Use an in-network ATM when possible to avoid paying unnecessary fees.
- Monitor your accounts regularly. Be on the lookout for any transactions you didn’t make. Early detection can stop a small issue from becoming a larger one.
- Open separate accounts. It’s important to open separate bank accounts for your personal and business finances. This will make it easier to track income and expenses for each account separately.
- Create a budget. A budget will help you track spending and save money effectively.
Bottom Line
It’s important to properly manage your bank accounts so you can have financial stability. Common banking mistakes, such as neglecting to monitor transactions and sharing sensitive information, can have serious consequences. Avoid these missteps by staying vigilant and making informed decisions so you can keep your finances in check.
Read the full article here
