Millions of Americans pay overdraft fees each year. This can be avoided by carefully balancing your checkbook. While this takes a bit of effort, it is simple once you get the hang of it. Here are 10 steps to balance your checkbook and get a handle on your money.
How to Balance Your Checkbook
Balancing the checkbook used to be a basic skill everyone learned. However, with the advent of online banking, few people take the time to properly balance their checkbooks anymore. While it may seem as though it is easier to simply pull up your debit card account or checking account on the computer, it is important to remember that banks sometimes make mistakes. Furthermore, your bank will not necessarily have a record of checks that you have written but that haven't cleared, and it is your responsibility to keep track of all of this information. Here are 10 steps on how to balance your checkbook to help you do just that.
1. Decide on a Schedule
The first in the ten steps on how to balance your checkbook is to decide how often you are going to balance it. Some people balance their checkbook as they go along, denoting checks written and debits made immediately. While this works well, you will still need a time to sit down and determine which checks have cleared and which checks have not.
Other people prefer not to record transactions as they go, but instead to sit down on a weekly or monthly basis and reconcile their checkbooks. This can work if you keep copies of checks that you write and receipts.
Regardless of your choice, you will need to set a regular time to sit down and balance your checkbook. Once you get in the habit of doing so, it becomes much easier to keep it balanced and avoid costly overdraft fees.
2. Have a Check Registrar in an Accessible Place
When you receive a checkbook from the bank, generally it comes with a check registrar. If it doesn't, you can keep one on your own using paper and a pen. A registrar is a written record of checks, debits and deposits. This is where you will track all of the money you put into your account and take out of your account. You should have this somewhere accessible so you will remember to balance your checkbook regularly.
You may also want to order checks from the bank that have carbon paper to create a duplicate copy. This way you will be able to go back through any checks you have written in case you forget to record them in your registrar.
3. Write Down the Beginning Balance
If you have never balanced your checkbook before, you need to have a starting point balance. The starting point balance should be the current balance in your checking account. The balance can be found by looking at your online account, checking your statement or going to the bank and asking what your balance is.
Remember, though, that uncleared transactions and uncleared checks may impact this balance, so you will need to account for those in later steps of balancing your checkbook.
You need to ensure that your check registrar is up-to-date with all the checks you have written, deposits you have made and debits. You can do this daily, as you write a check, or on a weekly or monthly basis.
Sit down with your cancelled checks, your ATM receipts and your receipts for items you purchased using your debit card. Make sure each item you bought and each check you wrote is listed on your check register. Make sure each deposit is also properly recorded, including direct deposits.
You can compare this list to your online banking transaction list and/or to your monthly statement in order to ensure that they match. However, do not assume that online banking or bank statements are always correct. It is important to check each item one by one in order to determine that the proper amounts were debited or credited.
5. Cope with Uncleared Checks and Deposits.
Coping with outstanding checks is one of the most difficult parts of reconciling your checkbook. When you write a check, the bank will not take the money out until the recipient cashes that check. This could make your balance appear much higher than it is if you do not keep track of these unpaid checks when reconciling your checkbook. Keep a list of these in the appropriate column on your check registrar so you will know exactly what you have outstanding.
You should also keep a list of deposits that you expect to clear, along with the dates when you expect the money to become available in your checking account.
6. Account for Interest and Fees
Bank interest and fees also need to be accounted for when reconciling your checkbook. These should be written in your transaction registrar right along with all of your other debits and credits so that they can be added and subtracted appropriately.
7. Add It Up
Once you have all of your transactions listed, you need to add up all of the debits and credits on your account. Don't forget to add the interest, fees, debits and credits that have not cleared yet.
You should have one figure for everything you have or will subtract from your starting balance and one figure from everything you have or will add to your balance.
8. Determine Current Balance
You can determine what your actual current balance is by taking the balance you started out with and subtracting any checks you wrote, uncleared checks and debits you incurred after that starting balance and by adding deposits that occurred after that starting balance.
For example, if you wrote down the starting balance in your bank account on December 1, you need to subtract any money you spent after December 1, as well as any checks you have written that haven't cleared yet. Add any monies deposited after the 1st and you will have your current correct balance.
9. Stay Up To Date
Once you know your actual current correct balance, you can keep your checkbook constantly balanced by faithfully recording every transaction in your check registrar. That way, you will know exactly how much money you have at all times since uncleared checks and unposted debit transactions will be visible to you even before they appear online or on a bank statement.
10. Check for Errors
You can check your bank statement and online banking for errors and if you identify a discrepancy, determine whether your record is correct or whether the bank record is correct. Do not simply ignore an error or assume that the bank is correct every time there is a difference between your records and theirs. The point of learning the 10 steps of how to balance your checkbook is to take control of your own money and not depend on the bank to watch your budget for you.
References for this article can be found at:
- Mapping Your Future (http://mappingyourfuture.org/Money/checkbook.htm)
- Balance Your Checkbook Step By Step (www.ffltx.org/.../TM%20-%20Balancing%20Checkbook%20-%20Step%20by%20Step.pdf -)