Balancing your checkbook – or at least reconciling your personal electronic accounts with the bank’s – is crucial to managing your financial affairs.
People who fail to regularly balance their checking accounts tend not to notice bank errors, which do occur, albeit rarely. More commonly, non-balancers tend to find themselves overdrawing their accounts, incurring hefty fees in the process. And they find themselves unable to say with any assurance whether they can afford to write a big check at any given point in time, whether it’s to pay a large bill or to make a large purchase.
Fortunately, learning to balance your accounts is almost as easy as opening your eyes, and it doesn’t have to consume a huge amount of time. Here’s a look at a few scenarios for keeping your records organized:
Scenario No. 1: You Write Paper Checks, but Keep Records on a Computer
Let’s say you write paper checks at the grocery store and for most of your other cash purchases, but you use Quicken or some other financial software to track your records at home.
The computer will make it easy for you to reconcile your records with the bank’s. The assumption here is that you have already entered transactions from your checkbook register into the software. This allows you to use the software’s checkbook balancing feature, and to categorize all of your transactions so you can see at the touch of a button how much of your spending is going to groceries, medical expenses, housing, etc.
First: Download your latest transactions from the bank into your personal software. This is possible with accounts held at most major banks or brokerage houses.
Next: Hit the “Reconcile” tab, if using Quicken, or whatever its equivalent is in your own software system. This will prompt you to enter the beginning and ending balances from your bank statement, along with the statement’s ending date. Once you press the go-ahead button, a list of all of your bank transactions will appear on the screen.
Next: Check the “Reconcile” or “Clear” box on all the transactions in your computer system that appear on your bank statement. If any are left on your bank statement but are not included in your computer register, write them in the computer register now and check them off. Do the same with all of the deposits and ATM transactions listed on your statement. If all has gone well, the reconciliation box should total zero.
Once that’s done, add in any uncleared deposits from your checkbook register, and subtract any uncleared checks. This will tell you where your account truly stands at this moment in time.
Time spent: about 10 to 30 minutes.
Scenario No. 2: You Pay for Everything with a Debit Card, and Keep Records on Your Computer
First: Download your most recent bank transactions into your software, as above.
Next: Go through and categorize each debit transaction in your software as best you can. If you kept a paper record of each transaction as you made it, this will be easier. If not, you can often tell from the bank’s entry where the money was spent and categorize it from there.
Next: Check off each transaction in your computer software that appears in your bank statement. Add in any uncleared deposits from your paper register, if you keep one, and any uncleared debits, either from your paper register or from the bank’s online list of not-yet-cleared transactions, to get your up-to-date account balance.
Time spent: about 10 to 20 minutes.
Scenario No. 3: You Write Paper Checks and Keep a Paper Register
First: Put a check next to all of the transactions in your checkbook register that appear in the bank statement. Do the same with deposits.
Next: If any transactions in the bank statement do not appear in your checkbook register, write them in now and check them off. Do the same with ATM withdrawals and debit card transactions.
Next: Enter any interest earned or fees paid (both listed in your statement) into the checkbook register.
Next: Add all of the newly checked-off deposit entries in your checkbook, along with any interest earned, to your last reconciled balance, or to the beginning balance on your bank statement. Then subtract all of the checked off check, ATM and debit card entries, along with the fees. The result should equal the ending balance on your bank statement.
Next: Add unreconciled deposits from your checkbook, then subtract all unreconciled checks and other withdrawals. The result is your up-to-date balance.
Time spent: about 10 to 30 minutes.
