Balancing your checkbook is something of a lost art these days. Fewer people are paying for things with checks and the growing use of online banking and budgeting apps mean that you can easily find your current and available account balances without having to go through the effort of manually balancing your checkbook.
Still, balancing a checkbook is a basic financial skill that people should know how to do, even if it isn’t something they have to do frequently. It can come in handy once in a while and doesn’t take too long to learn.
Why balance a checkbook
There are a few reasons that you should consider balancing your checkbook.
One is that balancing your checkbook is a good way to keep track of your money. And keeping a log of what’s going out and what’s coming in—and making sure you have enough in your account to cover future purchases. Even if you use a budgeting app or monitor your bank’s app, you might not be getting the full picture.
By logging every transaction, and adding to your balance if it’s a deposit or subtracting from your balance after paying a bill, you know the true balance of your account in real time. If you write a check against your account, for example, the bank won’t deduct those funds from your account until the person you gave the check to deposits it. If your bank app is showing that you have $2,000 in your account but you wrote a $1,000 check yesterday, for example, you only have $1,000 available to spend. Just logging into the bank’s app to see your balance won’t tell you how much is truly available to spend.
Balancing your checkbook is also a good way to keep track of your spending and check your account for fraud. During the balancing process, you look at every transaction in your checking account for a period of time, whether it’s a day, a week or your monthly statement. You might find that you’re spending more than expected or that there are transactions you don’t remember making, which can help you identify fraud.
Determine your current balance
The first step to balancing your checkbook is to determine your account’s current balance. The easiest way to do this is to look at your bank app and see the balance the app lists for your account.
You should see two balances. One is the account balance, the total amount of money in the account. The other is the available balance, or how much of your account balance you’re free to spend.
Record your pending transactions
Once you’ve found your current balance, you should make a record of your pending transactions. If, for example, your balance is $1,000 but you wrote a $250 check for your monthly car payment and a $100 check to the electric company, your available balance is $650.
While you might be used to instant gratification, sometimes the financial system moves more slowly. When you deposit a check, your bank might release only part of the funds immediately, placing a hold on the rest of the money until the check clears. Similarly, when you pay for something with your debit card or a check, the transaction may take a day or two to go through.
Once you know your balance, checkbook math is simple addition and subtraction. Add all of your pending deposits together and subtract the pending expenses and withdrawals to find the difference between your account’s actual balance and its available balance.
For example, if you have a $200 deposit pending and a $50 grocery purchase pending, your actual account balance should be $150 higher than your available balance.
Keep in mind that some transactions, such as paying someone with a check, won’t show up and be deducted from your bank statements immediately. In the case of paying someone with a check, it won’t show up until the other person deposits the check.
If you have an outstanding check payment, you’ll have to subtract it from your available balance after you balance the checkbook to determine the actual amount you can spend from the account.
Once you’ve recorded all of your pending transactions, you can compare your numbers to the bank’s numbers. If, based on your calculations, your available balance matches the balance the bank states for your account, your checkbook is balanced.
If there’s a difference between the two numbers, then there are a few possibilities.
One is that you simply made a math mistake. Go through your transactions again and make sure you did all of the addition and subtraction properly—and that all transactions are accounted for. If you arrive at the same answer, you should consider other possibilities.
If you didn’t make a math error, it’s possible that your bank made a math error. This is rare but worth checking for. Start with your statement balance as of the most recent statement, then add all the deposits your bank lists and subtract all the withdrawals. See if you wind up at the same balance that your bank is listing.
If your math matches the bank’s, you should go through each transaction in the statement carefully to check for unexpected fees or transactions. This is a good way to learn about bank fees that you don’t know about or identify fraud.
Addressing errors and fraud
If, while balancing your checkbook, you notice a mistake on the bank’s part or notice fraud, you need to take steps to address it.
The first thing you should do is reach out to your bank to report the mistake or fraudulent activity. If you’re a victim of fraud, it’s also worth checking your credit report to make sure no one has opened an account in your name.
Depending on the severity of the fraud, you may want to file a police report so the authorities can help you investigate.