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Knowing where each hard-earned dollar is being spent is an important part of budgeting. Using a checkbook register to manually keep track of every transaction, and then balancing it at the end of the month, is a great way to double-check that you’re not overspending in any one category and that your monthly finances are on the right track.
Although you can log in to your online account at any time and view your checking account history, the current statement won’t list any checks that haven’t posted to your account yet. This means the balance may not be accurate. Let’s say that your online account balance is listed at $200, but you recently sent a check to the electric company for $100. That check hasn’t been cashed yet, but you don’t realize this. You head to the grocery store and buy $150 in food thinking that you have $200 available to you. When the electric company cashes your check the following day, it bounces because you only left $50 in your account after grocery shopping.
Another important reason to use a register daily and to balance your checkbook regularly is to spot any errors and identify any potential fraud as soon as they happen. That gives you time to correct any mistakes before they affect your account and time to report any suspicious activity before you are held liable for any charges.
Balancing a checkbook is easy and quickly becomes second nature after you’ve repeated the process a few times.
Follow the steps below understand how to balance a checkbook.
The first step to balancing a checkbook is to list each transaction as it occurs. This includes each check you write and any deposits you make, as well as all debit card swipes, ATM withdrawals and assessed bank fees. Always keep a running balance by subtracting the withdrawals and adding the credits.
When you receive your monthly bank statement, you’ll want to set aside a few minutes to reconcile the statement to your checkbook register. Start at the top of the bank statement and work your way to the bottom one transaction at a time. As you spot that transaction in your register, place a checkmark in the provided column.
Once you reach the bottom of the bank statement, you’ll be able to look back through your register and spot any missed information. For example, if you quickly grabbed $20 at the ATM one day with the intention of writing it on the register when you got home, but then forgot, you’d notice the transaction is listed on your bank statement, but not on your register. You can now add that transaction to your register to correct the balance.
Before you can check to see if your register balance matches the bank statement ending balance, you’ll need to take into consideration the transactions that have not yet posted. To do this, start with the ending balance listed on your bank statement and add in any deposits you made since the statement was issued. Next, subtract from that balance any outstanding checks or withdrawals. The total from the bank statement should now equal the total from your check register.
If you don’t want to complete this step on paper, some financial institutions have online checkbook balancing calculators you can use. You simply type in your statement’s ending balance and add in any outstanding checks and deposits. The computer will do the math for you.
In the event that your balances don’t match, go back through each transaction and use a calculator to spot any arithmetic errors, as it’s easy to make a mistake when you’re in a rush and trying to do the calculations in your head. If you still can’t locate the discrepancy, ask a bank representative to review the statement with you.
Should you come across any charges that you did not make, notify your financial institution immediately to reduce your liability and to get the company’s fraud department on the case. This is especially important for debit fraud, as the Electronic Fund Transfer Act (EFTA) holds the account holder responsible for $50 when reporting happens within two business days after the loss was discovered and $500 if reporting happens between two business days and 60 calendar days after you received your monthly statement. If you wait longer than 60 calendar days, you’ll be liable for all of the money that was stolen from your account, as well as any fees that occurred because of the fraudulent withdrawal.
Now that you’ve finished balancing your checkbook register, draw a line under the last transaction. You can label the space in front of the line with the date if you wish. This way, you’ll quickly be able to locate the starting point for your next bank statement when you receive it.
The final step is to file your bank statement away for safekeeping. The IRS recommends saving important documents, like your bank statement, for up to seven years. Since banks are only required to keep records of your account for up to five years after you close it per federal regulation, you don’t want to simply rely on electronic records.
Although online banking won’t reveal any outstanding checks until they’ve been cashed by the recipient, there is still a way you can utilize technology to keep track of your account balance. Budgeting apps are an excellent alternative for individuals who aren’t keen on using pen and paper, and they only take a minute or two to update at the end of each day.
Check out MagnifyMoney’s latest roundup of the best budgeting apps: The 11 Best Free Budgeting Apps.
Once you select a budgeting app and download it to your laptop or Smartphone, you can sync the app with your current accounts, or enter your information manually. Start off by letting the app know your income for the month. As you make withdrawals, record them in the app so you always know how much you have in your account. The apps even allow you to set up alerts that will notify you when your balance reaches a certain level, thus avoiding incurring any overdraft fees.