How to balance your checkbook

Here's one of the screwiest things about North American high schools: you'll spend a great deal of time and frustration studying subjects you may never use again in your life, but you'll probably get little or no training in the life skills you need to use constantly, like balancing your checkbook, sewing on a button or shopping for groceries. Good thing this blog's here, huh?

So, what does it mean to balance your checkbook? Well, it's like this: you keep your own record of spending each month (or if you don't, you should). Your bank creates its own record of your spending, called a statement. Balancing your checkbook is making sure these two records match. And if you're like most people, you hate doing this and put it off for as long as you can, but that's just stupid. Balancing your books is much simpler than it was in the old days when you had to do everything by hand; there are loads of money tracking programs to choose from (Quicken, Money, Wesabe, Mint and others) that automate most of the process.

Why should you bother balancing your checkbook every month? Well, you want to make sure your bank isn't quietly ripping you off with insane fees or making inaccurate entries, you'll be able to keep your spending plan as accurate as possible, you can avoid getting dinged with overdraft charges, and you'll be able to catch identity thieves fast if they try to jack your account. I'm pretty sure you don't want to be financially responsible for some thieving stranger's big-screen TV. Plus if you take half an hour (tops) to do this every month, it never gets the chance to morph into a heinous chore from hell (which it will become if you leave it for six months to a year).

Please don't be like my husband back in his young and stupid days. He hated balancing his checkbook so much, and was so far off tracking his spending, that it was easier for him just to wait until everything cleared, then close his checking account and open another one. (Yes, he told on himself for the sake of a good personal anecdote. Needless to say, he is no longer young and stupid.)

You will need:

1. Half an hour to figure all this out.
2. A computer with a money tracking program.
3. Your monthly bank statement (paper or online).
4. Receipts for things you've purchased in the last month.

Fire up the computer and start your tracking program. Got any receipts, ATM withdrawals, checks, etc. that you haven't entered into it yet? Get crackin'.

Once you've finished entering all the receipts you can find (for future reference, it's easiest to do this as soon as you buy stuff), get out your bank statement. There are at least two ways you can do this, depending on how hands-on you want to be: you can reconcile items one at a time, or you can use the program to automatically sync up your records with your bank statement. Just for the sake of knowing how to do it, you're going to learn how to reconcile items one at a time, and this example will be in Quicken because that's what I happen to use -- your own money tracking software may (and probably will) vary.

To balance your checkbook in Quicken, you first open the account you intend to balance (let's say checking), then under the Banking tab, click Reconcile. A statement summary screen will pop up, asking you to enter some items from your current statement -- the statement date, opening and closing balances, any service charges your bank levied (@&%$&), and any interest you earned for the month (woot). All this information should be readily available on your statement assuming your bank is doing its job right. Once you've done this, Quicken will move on to the reconcile screen which features two columns: the one on the left shows all withdrawals from your account (including checks), and the one on the right shows all deposits to your account. If you've been entering your receipts religiously, there will probably be more items on each of these lists than there are cleared items on your statement. There will also be at least a few items on your statement that you forgot to enter, but don't sweat it; you'll fix these as you find them.

Start with the checks. Some banks return cancelled checks with your statement; others send Xeroxed copies of the cancelled checks. Get your checks in order and, one by one, compare the check numbers (and amounts!) on your statement with the ones on your records. If they match, click on each entry in Quicken to check it off. (If you made a mistake when you entered the check amount, you can fix it by right-clicking on the entry and editing it in the register screen, then clicking Return to Reconcile. If your bank made a mistake cashing the check and it's off by more than a few pennies, call the bank and let them know. They should make it right.)

Next, move to the deposits. Clear each deposit the same way you clear the checks -- compare the deposits on your statement to the deposits in the right column, and check them off one by one.

Make sure any bank charges and interest are cleared. (If you entered these into the summary screen, they should be pre-cleared. Thanks, Quicken!)

Now you're going to clear the section that's likely to be the longest part of your statement: ATM withdrawals and debit purchases. It pays to be methodical, check every amount carefully and keep track of where you are in the statement. To help me keep track, I cross off each entry in the statement before checking it off in Quicken. You may have to pop into the register screen a few times and add in a withdrawal or purchase you forgot about, but the bank didn't. If you come across a purchase you know you didn't make, call your bank and ask about it ASAP. And keep special track of restaurant purchases -- sometimes waitstaff will decide your tip wasn't enough for their liking, and add on some more. I do understand most waiters and waitresses make crappy hourly wages before tips (and you should always leave a decent tip for good service), but this is still a form of theft and you should call people on it.

By the time you reach the end of this part of the statement, you should be checking the Difference total at the bottom right of the reconcile screen in Quicken. If you've gotten everything right, the total should come out to $0. (Congratulations!) Click Finished. You've balanced your checking account for the month. If you reach the end of your statement and the Difference total in Quicken is anything other than $0, you will have to go back over your statement carefully to make sure you didn't enter an amount incorrectly, miss an entry, or clear an entry that shouldn't have been cleared. Stick to it until you reach the magic $0. You can do it.

And that's checkbook balancing in the age of computers. You can use the same basic skills to balance your other accounts where you get statements, including your savings and credit cards.

Now aren't you glad you don't have to do this with a paper registry and a calculator or an abacus or something? Bleah. Sucktastic.