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.
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.
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.