Balancing Your Checkbook
Balancing your checkbook isn’t hard to do if you take the time to properly record your transactions (ex: deposits and payments/withdrawals) into your checkbook and subsequently reconcile those transactions against your monthly bank statement.
You don’t need a degree in Accounting or Finance or be a CPA, CFO, Accounting Manager or even a bookkeeper to balance a checkbook. It mostly requires discipline and a general understanding of how a checkbook works.
Your checkbook has a starting balance, deposits (money going into your account) which you add, payments or withdrawals (money going out of your account) which you subtract and an ending balance. Just take the time to record your transactions into your checkbook, do the math and arrive at your new ending balance. Repeat for every new transaction. Simple, right?
At the end of the month (or whenever your bank statement closes) reconcile your checkbook against the bank statement. What do I mean by reconcile? I mean match every transaction posted to your checkbook against every transaction posted to the bank statement. They should match!
If all transactions posted to your checkbook during the statement period have posted to your bank account (and vice-versa, especially if you have automatic electronic deposits and payments – ACH), the ending balance in your checkbook should match the closing balance of your bank statement. If there are any discrepancies, you need to identify where the discrepancies occurred.
Obviously, if you have uncleared checks, that is, checks which you have written out, but which have not yet been presented for payment (meaning the checks have not been cashed and have not cleared the bank), those checks will be outstanding. Your checkbook balance will reflect those payments, but the bank statement will not, so you need to add back those payments to your bank statement’s closing balance to determine if the balances tie back to one another. Again, if they don’t, you need to identify where the discrepancies occurred.
At the very least, you should reconcile at least once a month when your bank statement closes; however, I highly recommend monitoring all financial accounts more frequently and reconciling as you go along. This is especially helpful if there’s potentially fraudulent activity on your account. The sooner you identify potentially fraudulent activity on your account, the faster you can act, contact your financial institution, and put a stop to it! If you wait until the end of the closing period, you increase the risk of higher fraudulent activity being undetected until it’s far too late.
Reconciling more frequently also helps to reduce discrepancies like forgetting to post a transaction, recording a deposit when it should have been a payment/withdrawal (or vice versa), computation errors (the checkbook is off by a few cents to several dollars to hundreds of dollars) and so forth. It’s quite easy to make computation errors if you’re not careful but you certainly don’t want to have to go back months or years to determine where the error occurred. And the mistake can be quite costly especially if you think you have more money in your account than you actually do!
The check register in your checkbook is relatively easy to use and you should use it. However, you can supplement your paper check register with a digital or software solution. If you don’t want to spend money on personal finance software (ex: Quicken), you can use a spreadsheet. If you use Microsoft Office, you can use Microsoft Excel. If you prefer Apple software, you can use Numbers. If you want an open-source option, you can use Calc in OpenOffice. You can quickly and easily build a check register in any spreadsheet application and use it as a self-check to your manual paper check register.
If you want a more detailed and robust system for managing your personal finances, a software solution (ex: Quicken) may be a better option. Personal finance software typically offers a similar check register format but can also offer more robust features including classifying transactions by categories, a month-end reconciliation feature, tracking funds in retirement and investment plans and advance reporting and analysis options. How detailed you want or need to be depends on your individual situation. I’ve been using Quicken Deluxe for many years alongside the paper check register, and it works well as a self-check. But I also use the reporting features to do year over year comparisons and analysis, identify expenses by category especially if I want to cut down on spending in certain areas and so forth.
If you’ve been balancing your checkbook and reconciling all along, terrific! If not, there’s no time like the present to get into the proper practice of doing so!