Balancing Your Checkbook
Balancing is the single most important aspect of good money management. Most Americans don’t take the time to go through with this task; some think it takes too long, others just don’t know how to get started. In the paragraphs that follow you can learn exactly how to balance your checkbook, but the time it takes will depend on how quickly you learn. Also, read through the “Top 3 Reasons” segment for a few pointers on why you should balance your checkbook on a regular (preferably monthly) basis.
Top 3 Reasons for Balancing Your Checkbook:
- Budgeting – By keeping records of your checking activities, you’ll be better able to budget your expenses and income. At the end of the month you can review your income versus your expenses and this will enable you to better plan for anything from large purchases to dinner at your favorite local eatery.
- Mistakes – Banks process thousands of transactions each day without any mistakes, but mistakes sometimes happen. Typically, you have only 60 days in which to inform us of the error. If you don't balance your checkbook monthly, you might not even find the error in 60 days.
- Insufficient Fund Fees – It is easy to forget to write down debit card purchases and ATM withdrawals in your checkbook register. When this happens you may start bouncing checks and incurring fees. If you don't find and correct the problem quickly, you could be charged multiple paid item fees of $19.00 each or returned item fees of $12.00 each. You can even be charged 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.
How to Balance Your Checkbook
Required Items: Most recent bank statement, checkbook balancing form (sample below), checkbook register, calculator, and a pencil.
Time: The amount of time it takes to properly balance your account will depend on the amount of transactions made during the previous period. It could be as little as 10 minutes or as long as an hour.
Step 1: Reconcile Your Checks
First things first, you must determine if all of your checks have cleared the bank. Sort through your cancelled checks or your checkbook register numerically (1085, 1086, 1087, and so on) as they are listed on your statement. In your register, place a mark beside each check returned to you or that appears on the listing, ensuring the amount you recorded is the same amount listed on your statement.
Step 2: Reconcile Your Deposits
Ensure that each deposit you reflected on the bank statement is recorded in your register. (Hint: Be careful not to forget direct deposits). Look through your deposit slips and paycheck stubs to be sure the bank correctly recorded all of the deposits that you made. Similar to Step 1, place a mark beside each deposit in your register.
Step 3: Reconcile ATM Withdrawals & Debit Card Purchases
Just as in Steps 1 & 2, you must repeat the same process with your ATM withdrawals and debit card purchases. Place a mark beside each transaction in your register as you locate it on the bank statement. If the bank statement shows transactions that were not listed in your register, now would be a good time to record them.
Step 4: Add Interest / Deduct Fees
You will be able to locate these items on the bank statement…look for any fees charged (subtract) or interest earned (add) and record them in your register.
Step 5: List Outstanding Checks
The sample checkbook balancing form above can be very useful in this step! Go through your register and using the left side (Column #1) of the checkbook balancing form list each outstanding check (checks without marks beside them because they had not yet cleared the bank). You must also do this for ATM withdrawals or debit purchases that have not yet cleared the bank. Total the column of outstanding checks, outstanding debits, and ATM withdrawals.
Step 6: List Outstanding Deposits
Review your register and using the right side (Column #2) of the checkbook balancing form list the outstanding deposits (deposits without marks beside them because they had not yet cleared the bank). Total the column of outstanding deposits.
Step 7: Record Your Bank’s Ending Balance
On line one (1) of the bottom section of the checkbook balancing form, enter the ending balance shown on your bank statement.
Step 8: Enter Outstanding Deposits
On line two (2) of the bottom section of the checkbook balancing form, enter the total outstanding deposits from column #2 (right side).
Step 9: Enter Outstanding Checks
On line three (3) of the bottom section of the checkbook balancing form, enter the total outstanding checks from column #1 (left side).
Step 10: Calculate Balance
Use your calculator to total lines one, two, and three as indicated by the plus and minus signs on the form, enter the new total on line four. This should equal the balance shown in your register. If it doesn’t, check for math errors in your register (reversed numbers, subtracting instead of adding, etc.).
- If you are not convinced that balancing is a good idea, read through the “Top 7 Reasons” again.
- To keep from making mistakes, print and use the checkbook balancing form above.
- Many people never record the pennies from written checks into their register, this could spell disaster and you should not fall for this common trick. Sometimes people enter phony amounts in their register to fool themselves into thinking they have less money that they actually do in order to be pleasantly surprised later, or provide cushion for errors. These pennies add up very slowly and likely won’t be enough cushion to justify not balancing your checkbook.
If you ever find yourself in such a mess that you can’t reconcile your checkbook with even your best efforts and you are incurring fees because of errors, the best thing to do could be just to open another account and start over. Before doing this, we recommend calling one of our Customer Service Representatives…they may find an easy solution that you overlooked. This practice can be avoided if your checkbook is balanced regularly.