Before the days of debit cards and electronic banking, paper checks and cash were the common ways people paid for things. Once a month your bank statement would arrive in the mail along with your cancelled checks and you would sit down and balance your check book. That really consisted of simply checking what the bank statement said you had spent vs. what you had recorded in your check register.
Today, reconciling a bank account is almost a forgotten skill. I found one study that indicated that 8 out of 10 people either never or rarely balance their checkbook. So if we can track most of our transactions online now, is there ay benefit to reconciling your bank accounts? Here are four reasons you should continue this “archaic” process.
Check for errors
Believe it or not banks do make errors occasionally. By reviewing your transactions each month, you are much more likely to catch a transaction that doesn’t look quite right. If you see a charge that you don’t recall making, call your bank and inquire.
If you are regularly balancing your checkbook that means you are paying attention to where your money is going. When you are paying attention you are much less likely to overdraft your account and bounce checks. When you are reviewing your transaction each month you will notice that $200 check you wrote 2 months ago which hasn’t cleared your account yet for whatever reason. Those are the kinds of things we can easily forget and then we get a nasty surprise when we have 3 bounced checks because that $200 one finally cleared.
Protect against identity theft
Identity theft is a growing concern as it seems that almost every week there is another account of some retailer whose systems have been hacked. When you are checking your transactions each month, you are much more likely to catch it if someone is making bogus charges against your account.
Finally, looking at your spending a month at a time is one more way that you can review your spending each month. As you look through that list you have the opportunity to consider if your spending really reflects your most important desires. Is there a category that you are spending a lot on which really isn’t that important to you? Do you wish you were able to give or save more? As you look through that list of expenses you had the previous month, you have a good opportunity to consider those questions.
So how do I do it?
I think one reason many people do not reconcile their accounts is that they were never really taught how to do it. I know I was never taught how. But the truth is it really isn’t that hard.
First you need to get a copy of your monthly statement. Your statement will list your opening balance for the month and you start with that.
Next you start going through your account register or you can check your transactions online. Any payments or withdrawals you made are subtracted from that opening balance. Any deposits are added. Continue through checking off each transactions you made. When you are finished all of the transactions you made that have cleared your account should be accounted for and your total should match the ending balance on your statement. When it does then your account has been balanced and you are all set for another month.
Technology makes this even easier
When I opened my first checking account many years ago, the bank would send me a statement in the mail each month and then I had to manually go through the items in my check register, total them up, and check them off to make sure everything balanced.
You can still do it this way, though most banks stopped sending out statements by mail a long time ago so you may have to download your statement from the bank’s website.
While it isn’t hard to do it this way, it can be a bit cumbersome and tedious. The good news is that technology has made this much easier.
I actually started using Quicken to manage my accounts many years ago for this very reason. Using Quicken reconciling is easy. I simply enter in the beginning balance and ending balance and then go through the statement one line at a time and check off the corresponding transaction. Quicken does all the math and record keeping for me automatically and it takes me only a few minutes each month to balance my account.
When I first started using Quicken I had to manually enter each payment or deposit that I made. Technology has made even this a no brainer though as now I can just automatically download my transactions and I don’t have to enter anything. (I actually still do some of my accounts manually just because I am nerdy enough to actually enjoy tracking those things and the benefit of seeing exactly what I spent each month. )
If that still seems too hard, there are online services like Mint.com that can make this process even easier. Simply connect them to your bank account and they do most of the work for you.
If you haven’t been in the habit of reconciling your bank accounts, I urge you to start this month. It really isn’t that hard and it will give you a feeling of confidence because you will know exactly where your money went.