Accounting Tips

HELP! My checking account is overdrawn AGAIN!

This is a subject that is near, and dear, to my heart.  When I got my first checking account….well, let’s just say it was before the invention of the internet and online banking.  So, I have the advantage over many younger Americans in that I was taught how to balance my checkbook.  No, I’m not talking about balancing it on the tip of your nose or the tip of your finger.  I’m talking about checking off all the transactions that have crossed through your check register and matching the balance in the check register to the balance on the bank statement.  Personally, I think this is something that should be taught in high school math class, but the principles could be taught as early as elementary school. 

Since the invention of the internet and online banking, it has become relatively easy to check your bank balance.  You can even check your balances from your mobile phone.   However, this method, when used exclusively, leads to poor financial management habits.  Yes, you can see what your current balance is, but you may not see transactions that haven’t posted or aren’t yet pending.  In some cases, purchases and online bill payments made with your bank debit card or can take 48-72 hours to post to your account.  If you fail to take into account those transactions, and rely on the amount shown online for your bank account, you can find yourself in the red rather quickly. 

When you open your checking account, the bank gives you a little book for recording your transactions.  This is called a check register.  I cannot stress enough how important it is that you use this book and write down every transaction as it occurs, including any ATM fees.  This check register gives you a running balance of what is in your bank account and helps to ensure that when you make a purchase or withdraw cash, there is money in the account to cover it.

Once a month, the bank creates a statement of your account.  You can elect to receive these by mail or electronically.  When you receive it, take a few minutes to balance the account.  By balancing your checking account you can keep better track of your money, catch mistakes (yours or the bank’s), and avoid overdrafts and overdraft fees. 

Here’s how it works.

  1. Be sure to enter all your transaction into your check register.  This includes checks, debit card purchases, ATM withdrawals & ATM fees, online bill payments, and deposits.
  2. Compare the monthly statement to your check register by placing a check mark (√) next to all items that show on the statement.  Make any adjustments to your check register for any bank service charges.
  3. Add or subtract any deposits or transactions that appear in your statement, but were missed when filling in your register.  
  4. When your statement balance matches the ending balance for that month on your check register, your account has been balanced.

Most bank statements include a template for balancing your account on the back of the pages of the statement.  If you are using the electronic delivery option on your account, you might not get this template.  If that is the case, you can find a template here (https://www.ihmvcu.org/images/documents_pdf/Printable_Reconciliation_form.pdf).  There are online calculators that you can use to balance your account.  You can find one of those here (http://www.calculatorsoup.com/calculators/financial/checkbook-balance-calculator.php).

If you’re so inclined, there are some great options on the market for money management software that will help you track your accounts quickly and easily.  I have used Quicken for years and it is very affordable, but does require updates at least every 3 years in order to maintain downloads from your banking institution.  Mint.com is another app that works well for managing your accounts and it’s free at Mint.com.  Both have mobile software so that you can keep up-to-date records on the go.

Whatever method you choose, it is important that start tracking your account TODAY.  Once your account gets in the negative, bank fees start snowballing and it can be very hard to recover.  Additionally, your credit rating and eligibility for future accounts can suffer.  If you’re still having trouble making it work, give us a call.  We can help.