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How to manage a checking account

By Andrew Freiburghouse | Money Rates Columnist

While balancing a paper checkbook may seem like a thing of the past, the principles behind this practice are as valid as ever. In addition to preventing overdraft fees and catching erroneous charges, properly reconciling your checkbook can also allow you to take a better look at your financial habits.

Taking charge of your records

The key to managing a checking account is keeping an accurate record of your deposits and withdrawals. When you get in the habit of writing down every amount that comes in or out of your checking account, the process can start to feel routine -- possibly even satisfying. Recording every transaction that occurs (or verifying it online) and calculating your balance regularly is by far the most reliable way of managing your checking account.

Still, some may struggle to record every purchase on a piece of paper. If you are one of those people who has given up on that level of organization, develop your own system for tracking your account. This will require keeping careful tabs on your approximate balance and making sure not to exceed it. Because you're not being as precise here, it may be helpful to mentally round up the amounts on your purchases to prevent overdrafts.

If you choose this method, you may also want to keep a cushion in your checking account. Maintaining $50 as an off-limits reserve can save you a lot more than that in the long run. Today overdraft fees are routinely $30 or more per incident.

Checking account management tools

There are a lot of tools available for managing a checking account that didn't exist a few years ago. Online banking can give you instant access to your balance and spending records. It can also allow you to set up regular payments for recurring bills, withdrawing directly from your checking account on a predetermined schedule. Some online banking systems may even produce detailed reports on where you are spending your money, which can help you make adjustments to improve your spending habits.

But while technology can help you manage your checking account, it can also help you mismanage it if you're not careful. As useful as computers are, they still require careful input from you. There is still no substitute for diligence and accuracy when it comes to financial record-keeping.

Building discipline

Learning how to manage a checking account may also help you in other financial areas. If you can accurately keep records on your checking account, you may find it easier to accurately keep records for your business. If you can harness the discipline to maintain a cushion in your checking account, you may also find the discipline necessary to save for a comfortable retirement.

While it's not easy or necessarily fun, successfully managing your checking account is crucial to your overall financial picture. Also, if your current checking account charges you a monthly fee or lacks the features you desire, it may also be wise to examine the options in MoneyRates.com's checking account listings. Combining a competitive account with strong money-management skills can yield a best-of-both-worlds scenario for your finances.

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