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How To Balance a Checkbook

January 3rd, 2013 Personal Finance

Being able to balance your checkbook is an important skill to have - it allows you to reconcile the amount of money on your bank statement with your personal records and ensures that you know exactly how much money you have available. However, many people aren't sure how to go about balancing a checkbook, especially in the age of the debit card. If you set aside about half an hour a week to do so, you should end up with a much more accurate picture of how much money you have. Here's a basic primer on how to do it.

All you need is your checkbook register (located in the back of your checkbook), a pen and your most recent bank statement. Start by reconciling your checks - this means making sure that the amount of money you've written out on each check matches what the bank says. This is where carbon copies come in handy - whenever you write a check, it will naturally leave behind an extra copy for your records. Look at the amount you've spent and compare it against what shows up on your statement. Place a small check mark next to each item on your bank account as you verify them, and write it down in your register. Next, mark off all of the deposits in your checkbook that match your bank account.

Now you need to reconcile any ATM withdrawals and debit card purchases you have made. If this is your first time balancing your checkbook, you may not have recorded these in your register. Make a habit of doing this - it will help ensure the balancing process goes smoothly. For now, go through your bank statement and write down any transactions that you didn't cover the first time around.

Next, take note of any accumulated interest or bank fees incurred in the past month. You can find this information on your bank statement, and though the amounts may be small, it's important to track every dollar and cent that enters and leaves your account. It will affect your bottom line, so be sure to do it!

List any outstanding checks you have - these are checks you've written that haven't been cashed. Although the money is still in your account, it could be taken out at any moment, so it's best to assume that they are off-limit funds. Your balancing form should have a second column dedicated to outstanding checks. Alternatively, it could have one labeled "debit" and another labeled "credit." Write down the amounts in the "debit" column. Now do the same thing for any checks in your possession that you have yet to deposit.

Finally, it's time to calculate your balance. On the first line of your balancing form, write down the final account balance listed on your statement. On the next, enter the total outstanding deposits, and on the third put down your total outstanding checks.

This next part can be a little tricky. Take the balance listed on your statement and add any outstanding deposits you may have. Now subtract any outstanding checks you have. The final number should give you the amount of money you really have, including transactions that haven't yet been cleared by the bank. This should match the balance listed on your check register. If it doesn't, go back and check your math - you may have written down a number incorrectly or made a mistake with your calculations. Eventually, the two numbers should match. Congratulations! You've just balanced your checkbook.