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How do I balance my checkbook?

Question:

How do you balance a checkbook?

Answer:

To start with, here are some reasons why it is important to keep a record of your checking account independently from your bank statements:

  • Differences in timing. Suppose you write a big check and send it off in the mail. Between spending a few days in transit and the time it takes the recipient to process the check, it might be a week or more before your bank's records reflect that check. In the meantime, the bank's version of your balance would show that money as still available to you. Keeping your own records gives you a balance that reflects commitments you have already made but which are not yet reflected on the bank's balance.
  • Detecting problems. Banks make mistakes, and there is also the possibility of fraudulent activity in your account. Keeping an independent set of records helps you spot charges to your account that shouldn't be there.
  • Staying aware of new fees. Banks send customers a lot of information, and it can be easy to miss something like the notification of a new fee. Having your own records to compare with the bank's highlights when there has been a new or unusual fee.

Reconciling your records with the bank's

The key to balancing a checkbook is getting your records to agree with the bank's. Follow these steps:

  1. Note all the transactions on the bank's records that are not in your checkbook, then update your balance.
  2. Reverse out of your balance any transactions on your records that are not yet reflected on the bank statement. Now compare the resulting balance with the bank's balance.
  3. If the numbers do not agree, it can be helpful to subtract one version of the balance from the other. The resulting number can often highlight which transaction - on your records or the bank's - is the source of the problem.

Consequences of poor record-keeping

Why go to all this trouble? Here are four good reasons:

  1. Overdraft fees. The latest MoneyRates.com checking account fee survey found that the average overdraft fee is now $32.84 per occurrence. Keeping accurate records can help you avoid these charges.
  2. Missed payments. If you write checks or have automatic bill payments that your balance can't cover, the result may be that you miss making some payments and lose an important service you count on.
  3. Damage to credit rating. Missed payments can hurt your credit rating, which can make credit harder and more expensive to get in the future.
  4. Expulsion from bank. If you have enough problems with bad checks and overdrafts, the bank may simply terminate your account. This goes onto a record that other banks can see, so you may find yourself cut off from the banking system entirely.

Whether you use an old-fashioned pen-and-paper check register or an electronic tool, the main thing is to get into a habit of regularly updating your records so you have accurate information when it comes time to make the next payment.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and scroll down to find the "Ask the Expert" box.

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