Unless you were fortunate enough to have a parent show you how, or you perhaps learned how to do it in college, you are probably relying on the balance your bank gives you at the moment you inquire (either online, at the ATM, or over the phone).
The problem with that method is that your bank's balance is dependent on what transactions have actually been processed at the time you are checking. Most people don't realize that just because they wrote a check three days ago that it might not have cleared yet. So they have a false sense of their available funds, and end up over spending and then being hit with high overdraft fees.
The only true way to make sure that your bank's balance matches your check register's balance is to Balance Your Checkbook every month. Don't you think the bank sends you a monthly statement for a reason? Then it's time to learn how to use this valuable tool.
Step 1. Open your bank statement. Then take a piece of paper and draw a line down the middle of it. On the left side label it "Check Register," and on the right side label it "Bank."
Step 2. Write the bank's ending balance on the right side of the paper. This is what they think you have in your account at the end of the statement period.
Step 3. Bank statements are comprised of three sections:
a. Deposits to your account
b. Withdrawals from your account (i.e. checks written, ATM or online purchases)
c. Bank Fees
You will need to go through each of these sections and make a check mark next to each entry from the bank statement to the corresponding entry in your check book.
Step 4. Where ever the last check mark is, draw a horizontal line across your check book at that point. Take the balance as of that entry and enter it on the left side of your paper under "Check Register."
Step 5. Inevitably, you will have made deposits or written checks that the bank will not be aware of as of the statement date (these items will not have check marks). Also, any fees they have charged you will not be reflected in your register. In order to balance your check book, you need to do the following:
a. Any deposits to your account you have made but the bank hasn't credited to your account yet, subtract from the left side.
b. Any checks you have written but that have not yet cleared your account, add back to the left side.
c. Any fees the bank has charged you, add back to the right side.
Step 6. Now add both the left and right sides, and barring any errors, both sides should be the same amount. Your check book has balanced!
Step 7. Inevitably, there will be a month or two when you won't be able to balance your check book. You have a few options:
a. Double check that you have logged all entries in your check register that the bank has debited or credited you for (what if you forgot to enter a check you wrote).
b. Make sure you entered the correct amount for each entry. If, for instance, you wrote a $50 check, but logged it as $30, the bank will have deducted from your account $50 (the correct amount), so you need to subtract another $20 to correct the error).
c. Redo your math for the statement time period.
Step 8. It you cannot find the error, take the difference you are off from the bank's balance and add or subtract it from your last checkbook entry so that when you balance your checkbook next, whatever error you made will be corrected. For example, if the bank's balance is $20 less than yours, then deduct $20 from your checkbook, or vice versa.
Once you learn how to Balance a Checkbook, after a few months, it will get easier and make more sense. The benefit is that you will always know the "true" amount of money you have to spend, and you will learn an invaluable skill that you can pass on to your family members!
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