With the advent of online banking through companies like PerkStreet, Ally Bank, and the ING Electric Orange checking account, there is a significant component of the banking population that doesn’t balance their checkbook. They simply check their balance during the day via a banking app and if there’s money there, they spend; if no money is there, they don’t … or they transition their spending to their credit card.
While only spending money you have is a great way to live, not knowing how much money you have TO spend is not. This financial bad habit is “planning to fail.”
Why balance your checkbook?
Don’t get me wrong – applications on your phone or iPad are great. I use them myself. But it’s important to balance your checkbook when your statement arrives via email or snail-mail to discover:
1. Fraud against your checking account
Fraud can creep in via large transactions, a lot of transactions, or very small transactions. Balancing your checkbook helps you find this fraud sooner rather than later.
2. Fees you weren’t aware of
If you’re dealing with the three banks I recommend, PerkStreet, Ally, or ING, fees will rarely be an issue, but if you’re dealing with other banks or local banks, you could find fees assessed against your account when you balance.
Sign up for PerkStreet’s REWARDS checking account here!
3. Checks that haven’t cleared
If you wrote a check to your nephew for his college graduation and he neglects to cash it for several weeks (of months) you will consistently think you have more money available in your checking account than you actually have.
4. Mistakes made by your bank
Banks are staffed by humans, and human error DOES find it’s way into your checking account. I find it odd that mistakes are almost NEVER in favor of the customer.
5. Mistakes you made
Yes, you’re human too.
6. How much you truly have available in your account
Any one of the previous five will affect your available balance and with NSF fees topping $35, it’s critical to make sure your balance is accurate.
Sign up for your ING Electric Orange checking account HERE!
How to balance your checkbook
- Start with your check register’s balance
- Subtract any service charges or other deductions not previously recorded in your register that are listed on your statement
- Add any credits that you didn’t record in your register that are listed on your statement
- The resulting number is your new checking account register balance
Next take a look at your account statement
- List your statement ending balance
- Add any deposits not shown on this statement
- Subtract the total of all outstanding checks, ATM, debit card, or other electronic withdrawals not listed on your statement
- This balance should match your register’s balance
If you find a discrepancy or if the numbers don’t match:
Go back and make sure your numbers are correct. It’s easy to make a mistake such as transposing numbers, so it’s a good idea to double-check every entry first. Then, if there are still errors, contact your bank.
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I don’t balance my checkbook but I do always have a handle on what’s going on through my online ledger. I always keep a cushion of money that even uncleared stuff never puts me in any jeopardy, and if it’s a large purchase, well I know that it’s there so again, no surprises. You’re right, though, it’s going the way of the dinosaur.
Thanks.
My wife enjoys balancing the checkbook, but I agree it seems to be a lost art. We were recently traveling and one of our debit cards was not working so my wife pulled out her checkbook and said “that’s odd, there is money in the account.” The lady behind the counter said “wow, that’s impressive… I didn’t know anyone still did that.”
It’s amazing what will slip by if we don’t pay attention.
I agree it is a lost art, especially now with mobile banking. I just have my bank’s app and track my balances that way. It’s saves me time and effort and I enjoy the novelty of not having to sit there with my checkbook in hand.
I use a spreadsheet to keep a running balance for my checking account. It has a seperate tab for each month, so I can track monthly expenses, and a tab for outstanding payments.
But the real value of my spreadsheet is that my outstanding payments tab also tracks upcoming bills for the next 8 weeks (4 pay periods). Because most of my bills are fairly regular, I can track what I will probably be paying in upcoming months. I also allocate a standard amount every week to be taken out as cash for day to day expenses (gas, groceries, a little spending money, etc.)
With a glance at the first/Summary tab I can tell how much money I have in my account, how much has yet to be deducted for current bills (even ones where I have yet to write the check) and how much I should have over the next 2 months. If I have something I think I want to purchase, I use that information to decide if I can afford it and whether to buy it now or wait a bit.
Between Quicken and online account access, I am able to reconcile checking and credit card accounts daily, which I’ve made a pretty dedicated habit.
On one rare occasion, I let it slide for a couple of days, and of course that was when my iTunes account was hacked and somebody used my banking info to download about $75 worth of iPod games. Not a big hit, until checks that I had written days before started clearing. At $35 a pop, the NSF fees added up and only accelerated the problem until my account was deeply overdrawn.
Fortunately, I was able to work with iTunes and my bank to have the all of the charges credited back to my account, but the stress of having to deal with this problem might have been somewhat reduced if I’d caught the charges as soon as they appeared.
I can’t stress the benefits of keeping close track of account balances, and I don’t see any need to wait until my statements come in to reconcile them.