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After we entered the digital age of banking, many people felt comfortable giving up check registers and balancing checkbooks because they can monitor their checking account online. However, being able to balance a checkbook is still a useful skill to have in personal finance. If you are living paycheck to paycheck, then you might benefit from keeping a close eye on your expenses.
Online checking accounts are convenient, but if you get too comfortable, then you might lose track of your finances on a transaction-to-transaction basis. For the extra five to ten minutes it takes, being able to balance a checkbook might be the key a firm grasp on your finances.
Steps to Balancing a Checkbook
Track Your Transactions
Using a checkbook register, a piece of paper, or an electronic spreadsheet, record every transaction you make on a daily basis. That should include checks you write as well as debit card and ATM transactions. If your debit card or ATM transactions include a fee, it should be noted as well. You also want to include any incoming money, such as paycheck deposits and refunds. In short, you need to note every financial action in your checking account each day.
At the end of the day, tally up your transactions – subtracting check withdrawals and debit card purchases while adding deposits – to arrive at a current balance. This will give you a running tally, so you know precisely the amount of money you have available in your checking account. At the end of the month, take all of your daily recordings and compile them into a monthly expenditure report.
Balancing Your Checking Account
Each month, your bank will either send you a bank account statement, or it will notify you when it is available to download online (some banks waive account fees if you receive your statement online.) At the end of the month, take your bank account statement and line it up with your hard copy of transactions to see if they match up. Check off each transaction that matches your statement. Keep in mind that some recent transactions may not show up on your bank statement because the checks had not yet cleared by the statement date.
If your balance doesn’t match the balance on your statement, review the list of transactions on your statement to see if there are any possible errors or unfamiliar charges. Your bank statement should have a number you can call to discuss any transactions you think are unauthorized or in error. Review your version of transactions to see if you might have forgotten or incorrectly recorded a transaction.
If your balance matches the statement balance, you have successfully balanced, or “reconciled” your account.
By maintaining manual control over your checking account transactions, you accomplish three very important objectives in your financial management:
Keeping track of your money: Knowing what’s coming in and going out of your account on a daily basis helps to keep your spending under control and helps you stay within a budget.
Catching mistakes: Mistakes do happen and sometimes they go undetected. It’s easier to correct a mistake as soon as it occurs rather than sometime in the future.
Avoiding overdrafts: If you are managing your finances close to the edge, daily tracking and monthly reconciliation will help you avoid overdraft fees, which can make it more difficult to stay ahead.
If you are not one for the paper and pen, or even an electronic spreadsheet, you could consider using a personal finance app, such as You Need a Budget or Mint. These apps could provide you with a real-time view of your account activity, allowing you to track you spending against your budget and catch errors or unauthorized charges as soon as they occur. You can also sign up for text alerts from your bank, which would inform you when your balance falls before a certain amount. It will also inform you of any transactions that exceed a certain amount.
While these apps have a sort of reconciliation function built in, you should not get complacent. To truly have your finger on the pulse of your finances, you only need to take ten minutes each month to review your statement transactions to ensure they are accurate.
Author: Jeff Gitlen