The Right Way to Balance a Checkbook
Understanding how to balance a checkbook might seem really easy. It's basic subtraction and addition, right? Well, you might be surprised that 69% of people never balance a checkbook. It's even more surprising that some people don't even know how to properly write a check.
With the rise of popular online technology like Mint.com, the need to keep an actual paper register is a dying trend. Even if you bank online and have access to online tools to track spending, it's still important to balance a checkbook and keep an accurate tally of your spending.
When you write down every transaction as it occurs, you not only get an accurate rundown of your current bank account balance, but you're also more aware of where you are spending your money. Always having an updated value for your bank account balance is especially helpful when you write a check, or need to withdrawal cash. You have a quick way of knowing if you have enough money in your bank account to cover it.
There are many benefits to balancing a checkbook.
- Real time tracking of your money
- Catching mistakes
- Avoiding overdrafts and fees
- Helps with budgeting
- Supports you and your savings goals
TRACK YOUR TRANSACTIONS
One of the first steps towards good financial management is accurate record keeping. Online banking can help when it comes to checking your transaction history and knowing your current checking account balance, but keeping a hard copy of your spending and taking the time to manually track your spending is more important. I have found that when people manually track their day-to-day spending, they are surprised on where their hard earned money is actually going. Those small purchases really add up and catch people off guard.
When recording transactions in your checkbook, make sure to record EVERY transaction. This includes checks that you write, debit card purchases, cash withdrawals, automatic bill payments, etc. If regular pen and paper is too old school for you, then make sure to check out online checkbook tools such as Checkbook & Balance My Checkbook.
BALANCING ACCOUNTS
Balancing your checkbook is a great way to be more aware of your spending habits, but it's also a great tool to catch costly mistakes. Make sure to compare your manual checkbook with your account statements. When comparing the two, make sure that things match up. This means that what you recorded on your checkbook should match the transactions in your bank statement. If something is off, make sure to do some investigative work to figure out why they are not matching. Did you write down the wrong numbers? Did you forget to record a transaction? Maybe you missed an automatic payment? Did the bank or institution make a mistake?
When comparing my checkbook to my bank statement, I cross off things in my checkbook as I go along. It takes me about 15 minutes a month to balance my account. If you don't want to write down each transaction right away, then make sure to save your receipts throughout the day and add them to your checkbook at night.
WHAT TO LOOK OUT FOR/COMMON MISTAKES
The most common mistake when filling out a checkbook is forgetting to record a transaction all-together. Life happens, we are constantly in a hurry, and sometimes we just forget. To avoid missing transactions, I recommend recording the transaction at the time it happens. If you end having surplus in your checking account at the end of the month, then forgetting to record a written check might not be that important. However, if your checking account balance is low at the end of every month, knowing the exact amount in your bank account at all times is crucial.
When comparing your checkbook to your bank statements, remember that some transactions might not show up until the next bank statement. If you made a purchase on January 31st, it might not actually show up on your bank statement until February. You will have already recorded it for the month of January in your checkbook, so this could lead to some confusion.
HOW TO BALANCE A CHECKBOOK
1. Find out your CURRENT balance. Log into your account online, or call your bank and find out the current balance on the account you are wanting to track. Write this balance in the box at the top of your checkbook labeled “Balance or Balance Forward.”
Keep in mind that the balance you are currently seeing does not include uncleared checks or pending payments. Make sure to keep an eye on your account in the next couple of days in case your balance changes to reflect these transactions.
2. Record ALL Transactions. Write down any debits (money going out) and credits (money coming in) to your account. There are two columns in your checkbook to record these transactions. Each column labeled appropriately.
3. Label or fill out the description for each transaction. Some people choose to write down the store or institution where the transaction occurred. Some people choose to write down specific categories for each transaction such as food, utilities, mortgage, eating out, etc. This also helps with budgeting.
4. Update your transactions daily if you share the account with someone else. If both you and your spouse share the account, make sure that all transactions are being recorded by checking the account daily. If you can, try to have your spouse save their receipts throughout the day, so you can record them in your checkbook. This worked out best for my family. My husband would save his receipts during the day and keep them on the dining room table for me to record each night.
5. Compare your checkbook to your account statements at least once a month. Take 10-15 minutes to compare your checkbook to your account statement once it becomes available. Also make sure that all checks that you have been written have cleared your account. Record any interest that the bank may have paid you, and subtract any fees.
6. Finish balancing the account. Once everything matches, and all checks and transactions have cleared the account, draw two lines under the “Balance” amount in your checkbook. This will allow you to determine the last known correct amount in your checkbook. This will also give you a starting point when looking for errors the next time you balance your checkbook.
Do you prefer pen and paper or an online tool to balance your checkbook? Let me know about it in the comments below.
I prefer to do everything with a pen. Online stuff is pretty to look at but I much rather write and hold the papers/my notebook. I use a notebook for my monthly bills. I have a loose budget, that really serves as just a list of the bills I pay each month and the blaring fact that we are barely making it. Paycheck to paycheck isn’t even what we’re doing, I’m spilling into the next month, putting off what won’t cost me credit score points or late fees. Its frustrating. We’ve got debt to pay off, but since we relocated and I’m not working, we are sorely missing that extra couple grand I was bringing in per month. Any help you can give me is appreciated!!
I’ve been using the check book app on my phone. I try to enter the transaction right then. If not, I put the receipt in my pocket to enter later. I always declined receipts because I didn’t want the paper. Now I get irritated when I don’t get one. I try to check online daily to make sure I don’t miss anything and to mark transactions as cleared. I can’t afford the overdraft fees. And it’s embarrassing to be declined somewhere.
Do you offer a budget training online?