How to Balance a Checkbook

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When you use a checkbook, you need to know basic addition and subtraction to keep it balanced. Balancing a checkbook means you've recorded all additions (deposits) made to your account and subtractions (withdrawals). Each deposit and withdrawal is called a transaction. The purpose for balancing a checkbook is to know how much actual money you have in your checking account at any given time.

What's a checkbook register?

Step one in balancing your checkbook is to mark down all transactions in your register, which comes with your checkbook. The register is a little booklet where you write down each transaction (check, ATM withdrawal, debit card payment or deposit.)

Your register probably will have at least six columns:

Number: The check number.
Date: The date you made the transaction.
Description: To whom the check was written, or if you made an ATM withdrawal, or used your debit card.
Amount or Debit: The exact sum of the check, withdrawal or payment.
Deposit: This is where you mark down any deposits such as paychecks, money gifts (from a super-wealthy relative, perhaps?), money you may have transferred from a savings account into your checking account, and so on.
Balance: The actual amount of money that's in your account. You start with an opening balance (the amount of money you had when you opened the checking account). And then, by subtracting all checks, withdrawals, payments, and bank fees, and by adding any deposits or interest payments, you will arrive at your balance for that day.

Checkbook no-no: A bounced check

The lower your balance, the more important it is for you to be precise in recording all transactions; in so doing, you avoid bouncing a check. A bounced check is a check that the bank has returned (bounced back) to you because it's worthless; that is, the check is for an amount greater than the actual amount of money you have left in your account.

For example, if you send the phone company a check for $100 but your actual balance is only $75, then that check will bounce. When the phone company presents that check to your bank for payment, it will get a notice that your account has insufficient funds. Your bank will charge you a fee, in the range of $25 to $50 (this is a fee that you should ask about when opening an account) and the other party's bank will charge them a fee, as well. So bouncing a check is not only embarrassing, it can be quite costly.

Protect yourself against ever bouncing a check by having overdraft protection; ask your bank if it offers this service. The bank will then honor your bounced checks, but start charging you interest, usually at a high rate, from day one.

To avoid bouncing a check, you need to know how much money is in your account, which you do by balancing your checkbook. (Going online or to an ATM to check your balance will not give you an accurate number if you have any outstanding checks, that is to say checks you've written that have not yet been presented to the bank for payment.)

The most common mistakes when keeping a checkbook

The most common mistakes when keeping a checkbook is forgetting to record each transaction, and forgetting to record it at the time it happens. Yes, your monthly bank statement will give you information on checks you've written, or an ATM withdrawal, or a debit card payment — but by the time your statement comes in, you could have written several more checks that remain outstanding.

If you always keep more money in your account than you spend every month, you'll be safe. But if your balance is usually low by the end of the month the more careful you have to be in making sure you know how much money you actually have.

To avoid making mathematical errors, buy a register cover with a built in calculator. Some even keep track of your balance for you, provided you enter all transactions.

When your statement comes in, you should compare it to your register, fixing any mistakes, such as those times you took cash from an ATM and didn't record it when you got home. Of course, you can also just believe the bank and adjust the balance in your register to agree with the bank's closing balance on the closing date, which you can also do at any time by checking on line or at an ATM. But remember, your actual balance may be less than what the bank says if you have outstanding checks.

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