In the old days, people would regularly carry around their checkbooks and use them to keep track of their checking account’s balance. With the rise of digital banking and instant access to your accounts, checks have fallen by the wayside and manually balancing your checking account is even rarer.
Balancing your account means adding up all of your debits and credits (deposits and withdrawals), then adding the result to your statement’s starting balance. The result will be your current account balance.
Still, balancing your checking account is a good practice. While you might not do it as frequently as you used to, going through the process every few weeks or once a month can help you financially in a few ways. Here’s why.
Reconciling your checking account
One of the top reasons to balance your checking account is to reconcile your record of transactions with the banks. Banks are good at keeping track of everyone’s money. If they weren’t, they’d be in a lot of trouble. But still, banks aren’t perfect and you may find mistakes.
To reconcile your checking account, add all of the deposits the bank has not yet credited to the bank’s balance and subtract all the payments, withdrawals and bank fees the bank has not yet cleared from the subtotal to confirm that the bank’s records match the check register. Accounts typically are reconciled on a monthly basis.
While you needed a pencil and paper to do this in the old days, you can reconcile an account much more easily today with your banking app or budgeting software. For example, apps like Mint or PocketMoney can help you track transactions and give you a simple dashboard to use when reconciling your account.
1. Fighting fraud
Another reason to balance your checking account is to fight against fraud. If you’re reconciling your account and there’s a difference between the balance you expect to have and the balance your bank says is in your account, it isn’t necessarily a mistake made by the bank.
If a fraudster has access to your account, she may not immediately drain it. Instead, she could siphon off funds slowly enough that you don’t notice. Regularly reconciling your account can help you catch these transfers and put a stop to them.
2. Tracking bank fees
Fees are a reality of modern banking. Whether it’s a maintenance fee for keeping an account open or an ATM fee for getting cash from another bank’s ATM, you can expect to pay bank fees every once in a while.
When you look at your monthly statement, many banks will report a $20 withdrawal with a $3 fee tacked on as a $23 withdrawal. This makes it harder to keep track of the fees you wind up paying.
Tracking your own account activity and balancing your checking account lets you see how much you’re truly paying to use the account, which may encourage you to change to an account with fewer fees.
3. Keeping track of your spending
Budgeting can be hard. You have to build a budget based on your spending habits, then put in the effort to track your spending to make sure you’re staying within the budget you’ve built.
Balancing your checking account gives you an easy opportunity to track your spending because you have to go through every transaction in the account. While balancing, you might notice you spend more than expected on takeout meals or trips to the movies.
If you write checks with any regularity, tracking your spending becomes even more important. If you write a check for $500, that money will stay in your account until the person you gave the check to deposits it in their account. If that person takes a week or two to deposit the check, you can easily forget that the funds haven’t left your account and think you have $500 more than you really do.
When the person you gave the check to cashes it, your bank will pull the money from your account. If you’re not expecting the transaction, the check may bounce or you could find yourself without enough funds to cover other expenses or meet minimum balance requirements.