If you’ve been working on your budget for quite sometime, you realize that there is another very important balancing act that accompanies keeping your finances in order: balancing your checkbook. With computers and technology these days, everyone thinks they can just look up the items online, see where their balance is currently sitting and say, “Oh yeah, I’ve got enough money for X” where “x” is something not budgeted in. I know because I do this every so often myself.
However, not everyone is following up with the vital step of balancing to see where your finances are going. A budget is a great way at the start of the month to give each dollar a name and tell it where to go, but balancing the checkbook is the checks and balance (pun intended) at the end of the month to see just how well you did in keeping your budget. Each month, different little items will pop up and snip away at your wallet. Sure, you can keep taking it out of your slush/blow/fun fund, but is that money that’s really being used properly? Should you set up a new category in your budget? These answers all will be found out after balancing.
Balancing a checkbook can seem daunting, but it is not a difficult task to complete. The focus is on staying on top of the act so that it doesn’t overwhelm you. Waiting a day or two is fine, a week at max and you can still handle all of the transactions fairly easily. Waiting a month or two, and trying to remember how much of a $400 ATM withdrawal went to groceries, how much to fun money, how much to recreation and the likes, and the lines tend to get blurred a little.
With that in mind, here are the quick and easy steps to take in order to balance your checkbook.
- Put the starting balance at the top right column called “Balance” (Can be a new account, or more likely if you’re just starting out, the beginning of month balance or today’s balance)
- Determine your transaction that has occured
- Debits (payments, withdrawals, fees, etc) are items that are recorded when money leaves your account. These include checks you write, Debit card transactions, ATM/Teller withdrawal, automatic payments and online bill pay, and any fees associated with the account.
- Credits are items that are recorded when money enters your account, either by a direct deposit from work, an ATM/Teller deposit of cash, checks or a combination of the two, online transfer into the account such as another checking/savings account or Paypal, and finally any interest/rewards you may have accumulated
- The transaction should be recorded as follows:
Check #/Code | Date | Transaction Description | Debit | Credit | Balance
4. Repeat with each transaction.
Some helpful hints for recording your transactions:
- Check #/Code – If you wrote a check, this is where your check number goes. Otherwise you are putting something down such as DC – Debit Card, ATM – ATM/Teller Withdrawal, AP – Automatic Payment, AD or DEP – Automatic Deposit, T or XFER – Transfer to/from account, FEE or INT – interest.
- Date – The date the transaction occurred, NOT the date it clears your bank. This way, you should know how much money is left in your bank account at any given time, even if transactions haven’t posted yet.
- Transaction Description – “Groceries,” “Paycheck,” “Gifts,” “Quarterly Insurance,” etc. This should give you an idea of where the money was budgeted to so you can check on it.
- Debit – When money leaves your account, it is recorded under the Debit column. Credit column is then left blank.
- Credit – When money enters your account, it is recorded under the Credit column. Debit column is then left blank.
- Balance – This is where the rubber meets the road, where the running balance is located. You will take the starting balance, and then either subtract (Debit) or add (credit) the amount you recorded to the balance and then the new balance is recorded on that same line. You keep going down each line for each new transaction.
- If needed, use a calculator to assist you to ensure you are recording the proper addition/subtraction from each transaction.
- An example – If you start with $500.00 and you withdrawal $100.00 for groceries (debit), and the next transaction is a payment from work for $425.76 (credit), your transactions will look like:
Check #/Code | Date | Transaction Description | Debit | Credit | Balance $500.00
ATM 7/1/13 Groceries $100.00 $400.00
DEP 7/1/13 Paycheck $425.76 $825.76
These should give you some help in starting to balance your checkbook for future transactions. You may think, “But Josh, it’s a random Tuesday the 9th today. Should I just wait until the start of next month?” To that, I answer a quick and solid “No!” Start it today, either with the balance you have in your bank accounts now, or if you can, go back and have your starting balance be your June 30th balance and record each transaction for July (or whatever month you may be reading this in). Get into the habit now, and it will help you reap the benefits later.
Action items: If you have any questions or concerns, please leave them in the comments below or feel free to email me at joshuakearnsblog”at”gmail.com and I will get back to you promptly.