When was the last time you wrote a check? In this digital age of banking, writing checks and balancing a checkbook may seem like a thing of the past.
You might be surprised, but people do still use checks for things like paying bills and giving to charity. And knowing how to balance a checkbook is an important aspect of keeping track of your financial health.
It’s not just the checks written you want to keep track of. It’s also every debit and credit transaction.
Although it might have been more common for your grandparents, looking over your transactions and receipts is as relevant today as in decades past.
What does balancing a checkbook even mean?
Balancing a checkbook is simply making sure all of your bank account transactions match up to the transactions you've recorded in your checkbook. Here's some background information about this.
Before online banking and having the ability to check your account balances on cell phones, having a checkbook register was key in making sure one didn’t spend too much and overdraft their checking accounts.
After all, check-writing was how you accessed the money in your account, and it could take days in order for that check to clear.
Balancing a checkbook, also known as bank reconciliation, helped checkwriters not only keep track of the checks that were written but also gave current information about how much money they had.
Balancing a checkbook today
Today, balancing your checkbook or reconciling your bank account is used as a way to match your bank statements with your record of transactions. It is also very helpful for tracking transactions like tips or service charges.
Because all it takes is one error, and your receipt no longer matches what the debit amount was.
So in simple terms, balancing your checkbook helps you keep a running list of credits and debits. It’s a way to track any money in and money out of your accounts.
You can also use your records to check against the bank’s records of your transactions. We all know that banks make errors too!
Do you need to balance a checkbook?
Mobile banking apps and online access make it easy to see transactions quickly. Today we have almost instant access to our banking transactions, and debit card buys clear almost instantly.
However, it’s important to reconcile your receipts with your bank information anyway.
It's useful if you write checks and to keep a record of your money
For some, we may still need to write checks to businesses or companies that don’t accept card transactions like paying your rent or small businesses.
Keep a record of all of your transactions in a checkbook register or even a simple notebook as a transaction log.
In addition, there are times when pending transactions can skew the available balance in your checking account.
And since automatic withdrawals and pending transactions can take days to clear, it's good to be aware of your account balance.
Benefits of balancing a checkbook often
You should balance your checkbook fairly often and make it a habit. Here's why.
Helps you to recognize mistakes or financial fraud
Balancing your checkbook or reconciling your records with the bank’s records can help you spot any financial fraud. It can also be too easy to trust financial institutions, but banks can make mistakes too.
It happens, and you can end up with the wrong amount of money if you don't keep track.
You can find errors in charges
Comparing your transaction log or checkbook register makes it easier to spot errors or incorrect charges by merchants as well. It only takes a slip of a finger to enter the incorrect dollar amount and create a math error.
It reminds you of fees and subscriptions
Looking at your bank records is also a way to keep track of those forgotten subscriptions or fees.
Perhaps, the monthly fees are easy to remember, but what about the annual or quarterly payments that you might have scheduled for automatic withdrawal? When you habitually check your account, you're less likely to forget about these charges.
It helps you with your spending habits
You can check your spending habits by balancing a checkbook.
One benefit of keeping a register or transaction log is that noting every withdrawal or debit transaction will make you aware of how often you stop at a coffee shop, eat out for lunch, or also make other impulse purchases. It’s a way to face your money in a new way.
Knowing what is going on in your bank account will help you feel peaceful and confident about your finances.
Protects you from your account being overdrawn
When you keep track of every transaction by saving the receipts and writing down all the cash that comes in and all the cash that goes out, it minimizes or even gets rid of the chance your account will be overdrawn for non-sufficient funds.
Banks charge fees as high as $38.50 for being overdrawn. Knowing how to balance a checkbook will help you make sure you have enough money in your account to cover all of your withdrawals and payments.
How to balance a checkbook step by step
First, you need a way to record everything. You might choose an app, spreadsheet, checkbook register, or a notebook and pencil. Whatever you decide, make sure you are consistent.
Once you’ve decided how you’ll keep track of your transactions the process is the same.
1. Start with your account balance
Start by entering your current checking account balance. Knowing your current balance will give you a place to start from.
Anytime you use a debit card, or on those rare occasions, you write a check, be sure to write it down. Include the company or store, date, description of how you used the money, and the amount.
The same goes for any deposits or automatic withdrawals. Each time you add a line item, update the checking account balance.
2. Review your transaction history and compare it to your bank statement
Compare the amounts listed in your personal register or transaction log against the bank statement or transaction history. Note or place a checkmark on all the checks paid and deposits credited.
It might be helpful to hold on to receipts if you can’t enter them into a checkbook register or transaction log right away. And also in case of your checkbook not balancing. With finances, thinking ahead is important, and that way you can easily look back on the amounts later.
3. Finalize balances and create a routine
Once you've checked that all the transactions in your checkbook match the ones in the statement and the checkbook and account balances are the same, you're all done.
Whether you choose to do this weekly or monthly, compare your register to your bank account statements to be sure they balance.
What if your checkbook does not balance?
If the amounts and balance in your register are not the same as your bank account, you will want to double-check every deposit, credit, debit, and withdrawal to confirm the amounts are the same.
Using your bank records, update your check register with any transactions that you did not previously record.
- Are there any bank fees or interest charges you didn’t account for?
- Do the amounts for every transaction match up to what’s on the receipt?
- Notice any errors?
- Any automatic or scheduled payments you forget to list?
- Is there any interest earned you forgot to list?
When you take the time to compare your records against the bank’s records you make sure that there isn’t anything you don’t recognize. If there is, contact your bank immediately.
Key reminders for balancing a checkbook
- Save your receipts and verify the amounts.
- Keep track of upcoming automatic withdrawals and pending transactions.
- Make a note of every withdrawal and deposit.
- Have access to your most recent checking account statement and bank statements or transactions.
- Have a calculator with you to help with the numbers.
Balancing a checkbook is still relevant today!
Balancing checkbooks might look different than it did 20 years ago.
But balancing your checkbook on a regular basis is still important and relevant.
It’s a way to have peace of mind knowing that your check won’t bounce or your debit card won’t be declined the next time you’re at the checkout line.
Keeping a checkbook register might seem like a thing of the past, but knowing exactly where your cash is going is always necessary. It’s a great step to reaching your financial goals.