Importance of Balancing your checkbook

Balancing your checkbook, one of the most basic, fundamental personal finance tasks, yet millions of Americans don’t do it correctly. It’s something that most of us learned in elementary school, but don’t apply those principals to our lives today. Some people round every transaction to the nearest dollar providing a cushion to avoid bounced checks. Some enter fake transaction into the account to fool themselves into thinking they have less money so they will spend less. Others just don’t even keep up with the amounts at all, causing tons of bounced checks and bank fees.

Why should you balance your checkbook on a regular basis? Here are four good reasons to record and check those transactions on a regular basis. Double check the bank, double check yourself, avoid bank fees, know how much money you have.

First, you need to double check the bank to make sure they have not made mistakes. Although everything is handled electronically the bank does occasionally make mistakes in transactions. It’s important to record every transaction with the date and amount so you know how much money you have spent. Most banks give you 60 days to report errors in transactions so keeping accurate records will help you stay on top of your finances.

Second, you need to double check yourself to make sure you haven’t forgot about certain transactions. It’s very easy to get $20 out of the ATM and forget to record the transaction that day. If you are checking your home balance against the bank records those transactions usually appear the same day on the take out the money. Also, you need to remember to deduct any bills you pay automatically each month. Automatic bill pay is a great new technology, but it’s often hard to remember to deduct those payments from your checkbook balance if you don’t get a paper bill or reminder each month.

Third, you need to avoid unnecessary bank fees and charges. If you don’t know how much money is actually in your checking account it’s very easy to overdraft your account. Overdraft fees vary from bank to bank but they can add up very quick. Also, most times a single overdraft will turn into multiple fees because you are unaware of the overdraft.

Finally, you need to know your exact balance so you can use your money for more important financial matters. If you are the person who rounds each transaction to the nearest dollar to create a cushion in your account then you are wasting the power of savings. It’s good to have an extra unexpected $100 in your account at the end of the year, but that $100 could have been drawing interest form a savings account or could have went toward a credit card or other loan. This could save you hundreds of dollars in interest charges.

There is an art to keeping a balanced checkbook and it may take you some time to figure out the process. There are tons of free and paid software programs to help you stay up to date with your checkbook. Taking a few minutes of your time each month can save you hundreds of dollars per year!