- Identify mistakes that you or the bank made
- Catch identity theft
- Avoid bounced checks (and manage overdraft fees)
If you find yourself bouncing checks, be sure to do this anytime you're about to spend money from your checking account (before paying bills or swiping your debit card at a store, for example).
Why Balance Your Checking Account?
The goals of balancing your account are:
- Make sure you know how much money you have
- Make sure the bank has not lost money or overcharged you
- Match your records with the bank's records
- Catch mistakes before it's too late!
To get started, gather everything you'll need to balance the books. The easiest way to do this is online - you'll just need your computer and account information.
If you use pen and paper, you'll need the following:
- Most recent bank statement
- Check register (see What is a Check Register?)
- Calculator (or just use your computer)
- A blank piece of paper to work with
Start by writing your month-end account balance from the bank statement on your piece of paper next to the phrase "Bank Balance".
Compare your Check Register to your Statement
Look through every item on your check register, and make sure it includes everything from your bank statement. Place a small checkmark next to matching items (put the checkmarks on both the bank statement and the check register).
If anything is missing from your check register, add it (unless you think it's a bank mistake, of course). This includes ATM fees, overdraft fees, interest you've earned, and so on. If anything looks funny, write the date and amount at the bottom of your piece of paper so you remember to research it.
Add up all the deposits and withdrawals so you know how much you think you should have.
Find Outstanding Transactions
Next, look through your check register for any transaction that does not have a checkmark next to it. These transactions are items that did not appear on your bank statement - otherwise you would have checked them off.
Most likely, these are outstanding checks. Outstanding checks are checks that you have written to somebody, but they have not deposited (or the outstanding check didn't make it's way through the banking system by the time your statement was printed).
Add all of the outstanding deposits (direct deposit from your payroll, deposits that you mailed to the bank but which have not appeared yet, etc). Write this number on your sheet of paper next to "Deposits".
Then add up all outstanding withdrawals (outstanding checks you've written, automatic electronic withdrawals that you know have happened since the statement was printed, etc). Write this number on your sheet of paper next to "Withdrawals".
Run the Numbers
You've got several numbers on your sheet of paper. Now let's work with 'em.
Using your calculator, perform the following:
- Start with zero
- Add "Bank Balance"
- Add "Deposits"
- Subtract "Withdrawals"
The result should be the exact amount you show in your check register.
If the numbers don't match, you need to figure out why. If you find fraud or a bank mistake, contact the bank immediately - otherwise you might have to live with the problem.
In most cases, the numbers won't match because of:
- Arithmetic mistakes
- You missed a fee or interest payment
- Transposed numbers or "fat fingers" (345 becomes 354)