Balancing Your Checkbook in a Digital World
Wondering how to balance a checkbook? Learn about keeping your accounts reconciled, so you can avoid unnecessary mistakes and stay on top of your finances.
August 24, 2021
Back in the good ol’ days, when it was the norm to rent VHS tapes from Blockbuster and glanced down at pagers for work updates, the practice of balancing a checkbook was an important part of maintaining financial wellness. Balancing a checkbook is the process of conducting a monthly reconciliation of your physical checkbook to make sure it matches the paper statement your bank mails out.
Since most of us have 24/7 access to online banking and transaction records, you may be wondering whether it’s necessary to balance checkbook records in the modern financial world.
The short answer is: yes. Balancing your online checkbook is still a valuable practice that can help you catch accounting mistakes and foster better financial habits.
Let’s have a look at how to balance a checkbook in a digital world and why it’s still a solid practice to consider:
Why balance your checkbook?
Reconciling your account on a regular basis helps ensure the bank’s records match your records, and that no transactional issues have occurred. Here are a few other reasons why it can be beneficial to balance your accounts:
Bank errors: While bank errors are rare, they do happen occasionally. By reconciling your account, you can ensure bill payments, deposits, transfers and other transactions are processed correctly.
Merchant errors: Merchants can also make payment processing mistakes, like charging you an incorrect amount or not processing a refund. The sooner you contact the merchant about these errors, the more likely they are to correct them in a timely manner.
Budgeting & financial habits: Keeping an eye on your accounts and a record of your transactions can help you create better financial habits and make it easier to maintain a budget.
Fraudulent charges: If you become a victim of identity theft, an online scam or a stolen debit card, you may notice fraudulent charges in your account. While banks typically refund these charges, the process can be expedited if you spot the transactions and report them as soon as possible.
Check payment status: If you still fill out checks frequently, you’ve probably realized some checks get cashed long after you write them. Reconciling your checkbook will help ensure you have adequate funds in your account, even if the check clears weeks or months after writing it.
Available funds & bank fees: If you make a transaction that exceeds the available funds in your account, you may be charged overdraft fees by your bank. By reconciling your account, you’ll have a better idea of your available funds (while factoring in all the pending transactions).
Reconciling your accounts also helps you reflect on where your money is being spent. If you’re looking for ways to cut back on expenses, the first step is understanding where each and every cent is being spent. By taking the time to record transactions weekly, you can begin to notice trends that help you create a budget you can stick to.
How to balance a checkbook
The process of reconciling your accounts looks a little different today than it did 20 years ago, but the principles remain the same.
If you’re wondering how to balance a checkbook, you can follow the steps in the “balancing a checkbook worksheet“ below:
Create a record: To keep track of your finances, it’s helpful to have a detailed record of all the transactions you make. To do this, you can use a checkbook register, a spreadsheet or a good old fashioned pen and paper.
Check your account balance: Search your most recent checking account statement or take a look at your online banking account. Find your “available balance” and jot down this figure as the first entry in your new record.
Record pending transactions: If you have pending transactions (bill payments, written checks, debit/credit card transactions, etc.) not yet factored into your current balance, record these transactions next.
Record all transactions: As you continue to make transactions, write them down in your record. Keep track of each type of transaction — purchases, bill payments, withdrawals, deposits, refunds and even bank fees and interest. Write down the transaction date, amount and a brief description. You can do this on whatever schedule works for you, but try to check in at least once a week.
Calculate running balance: When you record each transaction, do the math to calculate your running balance. For each debit (purchases, withdrawals or fees), you can subtract the amount of the transaction from your balance. For each credit (refunds, deposits or interest), you can add the amount of the transaction to your balance.
Reconcile your account: Once every two weeks or so, log into your online banking account and see if your recorded balance matches the balance of your checking account. If it does, you have a balanced checkbook.
Look for errors (if necessary): If the balances don’t match, it’s time to comb through your records for errors, missing transactions or mistakes in your calculations. To do so, go back to the last time the balances did match, then double check each transaction from there. Address any discrepancies you find to ensure your account stays balanced.
It can be prudent to record transactions at least once per week and to balance your account at least once per month. The more frequently you perform these tasks, the less time they’ll take when you do.
Taking a step toward better financial health
Balancing a checkbook might seem like an old fashioned process to some, but it’s an important part of staying on top of your finances. By understanding where you stand financially, you can be better prepared for the future.
Ready to take charge of your financial wellbeing? Learn more about paying off debt, saving for a down payment and investing in your future with Tally.