Balancing Your Checkbook
Four Reasons You Should Balance Your Checkbook Monthly
Be honest. Do you faithfully balance your checkbook to the penny each month? Balancing your checkbook is one of the most basic habits for good money management, yet millions of Americans don't do it on a regular basis. I've met people who never record the pennies on the checks they write; people who enter bogus amounts in their check register to "fool" themselves into thinking they have less money than they really do so they can be pleasantly surprised later, or to provide a cushion for errors; people who only balance their checkbook once a year when they do their taxes.
Is balancing your checkbook an old-fashioned task that is no longer necessary? Here are four reasons you should balance your checkbook monthly:
- Balancing your checkbook is a method of verifying that your records (your checkbook register) match the bank's records, as shown on your monthly bank statement. This will always be an important task, although the method of accomplishing it is changing in the electronic age.
- Although your bank processes thousands of transactions accurately, it can make mistakes, and you typically have only 60 days in which to inform the bank of the error. If you don't balance your checkbook monthly, you might not even find the error in 60 days. Even more likely is the possibility that you made a math error in your checkbook register, which you're unlikely to find unless you balance your checkbook each month.
- If you make a mistake or forget to post an ATM withdrawal, debit card purchase, or other transaction in your checkbook register, you may start bouncing checks and incurring fees, which are often $25 or more for each returned check. If you don't correct the problem quickly, you can often incur a number of returned check fees or more than one fee for the same check if the person the check was written to re-deposits it right away in the hopes that your balance will now cover the sum.
- If there is a problem at some point, it's much more difficult to wade through months of transactions to figure it out. If you've balanced your checkbook every month, the most you'll ever have to do is look at the most recent month's transactions. Sometimes people make such a mess of their checkbook by not balancing regularly that they have to close out their account and open another one.
Unfortunately, the basic money management task of balancing our checkbooks is not taught in most schools and usually not taught by our parents. If you're just starting out on your own, or you have your first bank account, or you just never got in the habit of balancing your checkbook regularly, the next pages include simple, step-by-step instructions for doing it, and an easy-to-use checkbook balancing form.
How To Balance Your Checkbook: Step-by-step Instructions
- Balancing your checkbook verifies that your records match the bank's records.
- Banks CAN make mistakes, but even more likely is that you'll make a math error in your checkbook register.
- If you make a mistake or forget to post a transaction in your register, you may start bouncing checks and incurring fees of $25 or more.
- If there's a problem, you won't need to wade through months of transactions to figure it out.
Time Required: 10 to 30 minutes
- Reconcile Your Checks
Determine if there are checks that haven't cleared the bank. Sort your cancelled checks in check number order, or use the listing of your cleared checks in numerical order shown on your statement. In your checkbook register, check off each cancelled check returned to you or each check that appears on the check listing, making sure the amount you recorded is the amount the bank shows.
- Reconcile Your Deposits
Make sure each deposit shown on your bank statement is recorded in your check register (especially if you have direct deposit, which you can easily forget to record). Also, go through your deposit slips, paycheck stubs, etc., and make sure the bank statement shows all the deposits you made. Check off the deposits in your check register as you did for checks.
- Reconcile Your ATM Withdrawals and Debit Card Purchases
Go through the same process with your ATM withdrawals or debit card purchases, checking off each transaction on the bank statement in your check register. If the bank shows transactions that aren't included in your check register, record them now.
- Record Interest Earned and Bank Fees
Check your bank statement for any other fees and record them in your checkbook register. Also record any interest earned in your checkbook register.
- List Outstanding Checks
Now go through your checkbook register and in column two of the balancing form list your outstanding checks (the checks that you did not check off in your check register as having cleared the bank), as well as any outstanding debit purchases or ATM withdrawals that have not yet cleared the bank. Total the column of outstanding checks, debits, and ATM withdrawals.
- List Outstanding Deposits
Go through your checkbook register and in column one of the balancing form list the outstanding deposits (the deposits that you did not check off in your check register as having cleared the bank). Total the column of outstanding deposits.
- Record Your Bank's Ending Balance
On line one of the bottom section of the Checkbook Balancing Form, enter the ending balance shown on your bank statement.
- Enter Outstanding Deposits
On line two of the bottom section of the Checkbook Balancing Form, enter the total outstanding deposits from column one.
- Enter Outstanding Checks
On line three of the bottom section of the Checkbook Balancing Form, enter the total outstanding checks from column two.
- Calculate Your Balance
Use a calculator to total lines one through three, as indicated by the plus and minus signs on the form, and enter the new total on line four. This should equal the balance shown in your checkbook register. If it doesn't, check for math errors in your checkbook register, such as reversed numbers (e.g., $53 instead of $35), subtracting a deposit instead of adding it, adding a check written instead of subtracting it, automatic payments that you forgot to record, etc.
- For the easiest method of balancing your checkbook, use the Printable Checkbook Balancing Form.
- Don't fall for the common mistakes of never recording the pennies on the checks you write; entering bogus amounts in your check register to "fool" yourself into thinking you have less money than you really do so you can be pleasantly surprised later, or to provide a cushion for errors; or only balancing your checkbook once a year when you do your taxes.
- Sometimes, if you really find your checkbook in a mess, you can't reconcile it even with your best efforts, and you're incurring fees because of errors, the best thing to do is to open a new account and start over, closing the old account after all checks have cleared.
- If you don't reconcile, see if the amount you're off divides evenly by nine. If it does, it may be a transposed number. It's easy to transpose numbers in your register (you wrote $53.94 instead of $53.49, for example).
What You Need:
- Your most recent bank statement and/or cancelled checks
- A checkbook balancing form
- Your checkbook register
- A calculator and pencil