How To Balance Your Checkbook In The Era Of The Debit Card

This weekend, my mother, who is still firmly in the era of the handwritten check, marveled several times at my methods for paying for many things. I showed her how I had online bill payments set up, used my credit card for a number of purchases that she would have used a check for, and so on. After a few days of this, she basically shook her head and said that she would be completely lost without her system for balancing her checkbook.

Not really understanding why it was so important or what exactly balancing a checkbook means, I asked her how she does her checkbook. She showed me a nice neat ledger of each deposit and withdrawal from the account that she keeps in the back of her checkbook that reflects what she calls the “real balance” of the checkbook. Then, whenever a statement comes in from the bank, she compares that list of checks and deposits with her own to make sure that the bank’s records match her own.

I realized pretty quickly that I do basically the same thing, just with online accounts and receipts. Here’s how I effectively “balance the checkbook” each Sunday when I do my weekly financial review (where I also calculate my net worth).

Throughout the week before, I save every single credit card (and check card) receipt in my wallet. These serve as a reminder of what I’ve spent over the last few days. I usually jot down what it was on the receipt if it’s not clear.

On most Sundays, I take that pile of receipts and itemize them in Excel. I usually like to keep track of my spending in various categories so I know what areas I’m doing well in and also doing poorly in. So, for example, a receipt from the gas station goes in the pile for automobile expenses and so on.

I also check the balances of each of my credit cards and my checking accounts. I look through the new things posted to the accounts in the last week and make sure I understand what they all are – and also make sure that anything I’ve spent has posted to the account. I usually then go ahead and pay off the credit card balances immediately using online bill pay. I then get rid of all receipts that have posted to the account and have no chance for tax write-offs via the paper shredder. This usually leaves one or two receipts that I leave on my desk to check next week.

On the rare occasion that I write a check, I use the carbon copy of the check as a receipt and do the same things as I describe above. I also know, by using my online account balance and subtracting any outstanding receipts and any automatic bill payments that will happen in the next week, how much cash I have on hand.

This little procedure, which takes about ten minutes, does a fantastic job of ensuring that I don’t ever come close to overdrafting my checking account. It also helps me to process my receipts, something which used to be a big problem for me. It has the same effect as the old-school checkbook balancing without the huge time consumption of managing one of those old-fashioned ledgers in the back of the checkbook.

Of course, the older system does work – my mother claims to have never had an overdraft in thirty years using her system. That’s a pretty good track record of success, I’d say. I simply prefer my system because it has the same effect and works better with my lifestyle.

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  1. Susan says:

    I am also attached to my checkbook ledger – but not the checks. Here is a way to balance everything without receipts using a checkbook ledger (or 3×5 note card if you carry a wallet – try http://diyplanner.com/templates/official)

    I write down every expense in my checkbook – at the cash register. Then I write DC (debit card) or CC (credit card) in the far left column for the type of purchase. Rent or bills paid on-line are written in at the computer, so I always know the ‘real balance’ or my account.

    Every week or so I compare the checkbook balance to the on-line balance. I also break it down into categories in excel at this time. As I enter the amount in excel, I put a little check mark in the box between expense amount and deposit amount so I know I’ve entered it.

    This method has a couple other advantages:

    I always know how much money I have in my account (in the middle of the week).
    I don’t have to keep track of all the receipts.
    The bank statement generally puts an address and I can never remember if it was a grocery receipt, gas receipt or something else, but I can tell by the transaction description I wrote in the checkbook.

  2. Jesse says:

    In case you haven’t already, check out Gnucash (http://www.gnucash.org). It’s an open-source double-ledger accounting software. The latest version has a Windows port for those who use that environment. I find it easier to keep track of all my accounts using this instead of a spreadsheet like Excel, but of course to each their own.
    You can categorize all your expenses, income, liabilities, and assets; calculating profits and net worth and also building reports and graphs over variable time frames.
    I’ve recently been using it to track expenses and keep an eye on my own bad financial habits; I’m a notorious impulse spender (many, many small purchases that sneak up on you). I’m currently a student with a significant amount of student loans so it has really helped to minimize my debt and get me back on track after some needless spending and bad financial choices during my undergrad.

  3. Sean says:

    This is the method my wife and I use: We carry recipe cards that are cut down to wallet-size. Each card represents one of the “spending buckets” in our monthly budget. (Grocery/household, Entertainment, Gas, Eating Out, her allowance, my allowance.) Since we do all major shopping together, the cards tend to just be in my wallet (except for her allowance card) – but that’s beside the point.

    Each month we make new cards with the new budget amounts on them. As we spend money with our debit cards, we subtract the appropriate amount from the appropriate note card’s current total right at the checkout in the store and record the new balance. Presto – instant budgeting with no chance of overdraft, no chance to lose a receipt, forget about a purchase, or have to wade through a bunch of papers every few days trying to sort things out. (Plus it’s a good excuse to brush up on basic mental math skills. Or, if you have kids, you could probably help teach them the value of math and money by making them do it for you.)

    We *always* know exactly how much we have to spend in any given budget at any time. Simple. :-)

  4. acwang says:

    Why not use Quicken or Microsoft money? They are much better tools to manage your personal finance. If linked directly to your online accounts, quicken can download new transactions from all your online accounts with just one button.

    I use my debit card or credit card for almost all my purchase. That way, I have instant “paper” trail and I dont have to remember the receipts or write down each transactions.

    If I write a check, I enter it and also post a 1-week reminder to see if the check has been cleared.

    In addition to this, it has very useful reports, like networth (with networth history), budget reports, capital-gains, interest-earned, etc…

  5. Mmm I do the same thing too. Except I enter in the receipts on a daily basis – every night, I take 10 minutes to go through my pile, instead of spending half a day at the end of the month.

    I also make very detailed notes beside each purchase and even go as far as writing down WHAT I bought so that it can jog my memory instead of writing: “grocery store”…

    Then I do the “pending” and “cleared” data filter section and tally up what I have outstanding on each of my credit cards, and clear that exact amount.

  6. MikeVx says:

    No matter how careful you are about balancing, a debit card screwup can cost you dearly. You should *NOT* be using a debit card on an account that has any other purpose than to hold funds for the debit card. You are not inviting Murphy in so much as kidnapping him.

  7. Soni says:

    I use Excel for my check register. I call it that, even though I almost never write paper checks – I use the bank card for almost everything except rent and some small-vendor purchasers who don’t do the card thing.

    I used to just keep up with it in my paper check register, but my math is so craptacular that I’d find myself off by, say, $3.78 spread out over 12 transactions. *roll eyes*

    So I moved my register to Excel, let it do the math and then balance it weekly or so against my online account statement. Easy-peasy, no weird missing (or added) figures and best of all, no more dizzy spells caused by excessive exposure to Wite-Out solvent. :-)

  8. Suchintya says:

    Probably all the readers of this blog would be interested in an interesting tool, available at http://www.buxfer.com It essentially tracks all your expenses and shows you the balances, depending on how far you want to go with it. It also helps you to do so in groups, effectively dividing the expenses between individuals, etc.

    Another interesting thing is you can send sms to update your expense when you incur it (if you are in US)! All this can be done through totally online measures.

    There might be other such tools, although I am aware of only this.

    Regards,
    Suchintya

  9. Jon says:

    Two comments:

    1) Excel? Try OpenOffice Calc. Its very similar to Excel except its better (faster, less issues, better compatability) and its also FREE.

    2) Okay now to actually plug a Microsoft product, I use MS Money and love it. Instead of entering in each debit card transaction you can simply download electronic statements from your bank and then check off each one to reconcile things. I use to do it manually like you are doing in Excel, this new way is faster and gives me lots of charts and things. Also I can compare against a monthly budget, view reports such as monthly spending by payee or by category (i.e. gas or groceries). It even learns your repeat transactions so that it saves you alot of typing and selecting of categories. I’ve trained my MS Money to know that my “Netflix” payments should get applied to my “Leisure: Movie Rentals” spending category. Seriously, check it out.

  10. Alex Lopes says:

    Hi Trent,
    Nice post. Good suggestive way to maintain the expenditure track.
    Yeah, it is very true to maintain daily expenses report. Because most of the day we spend 1/3 of our time in workstation. We came back home and forget to maintain the record track. At the end of the month expenditure is higher than income.
    Budget=INCOME-EXPENDITURE=$0

    It is always better to pay the credit card balance in time. In fact, many credit card companies charge as high as 20% for any purchases that aren’t paid in full at the end of each month.

  11. lori says:

    I keep my checkbook balance in whole dollar amounts. For example, if I have a debit of $21.09, I transfer $8.91 to my HSBC online savings account. I find myself putting small amounts in my savings account several times a week. This has helped me build my online savings account tremendously.

  12. Reed says:

    I used to use a program called, oddly enough, Checkbook, which worked really well. Then my computer crashed… Now, I use a spreadsheet like everyone else here, but I use Google Docs, so I can access it from anywhere.

  13. LTruslow says:

    I have used Quicken for years, with great success. It is easy to use and downloading information is fast and accurate. I know that followers of this site may not want to incur the cost of the software. I only update my software every other year, and buy it on eBay. It costs me about $ 15 per year on average, without the headaches of creating and maintaining a spreadsheet.

  14. tYLER VS says:

    You answered my question about receipts. Thanks, Trent!

  15. David says:

    You have a really good system which doesnt seem too time consuming, good post.

  16. Mark B says:

    I have started a system similar to yours after reading The Simple Dollar. My question is which method of paying bills is better: 1)Paying bills directly through the vendors website, or 2) Paying bills through your banks online bill pay system? I use ING Electric Orange for my checking, but I go directly to vendor websites to pay most of my bills. Any thoughts?

  17. Kim Isaac says:

    Balancing a checking account with two people using debit cards has been a challenge for me. My husband and I have finally learned to record all debit transactions. Now I do know what is in our account at any given time. I don’t use your method, but I like it. I’ll give it a try.

  18. Amelia says:

    What works for me is keeping track using a debit card register. I’ve gotten them from Bank of American and Wachovia. It’s like a little book the size of a credit card with a pocket for my debit card. Every time I make a purchase, I jot it down in the book at the actual time that I’m using the card. It’s almost impossible to forget b/c I have to physically have the book in my hand when getting out my card. Then, I put a check mark next to the charges and they appear online on my statement. That way, if there’s something that hasn’t posted yet, I can just subtract that from my available balance and know the “real” amount that is left. This way I don’t have to hold on to the receipts (I’m hopeless) and I’m always tuned in to what’s going on.

  19. Bill says:

    Quicken does all this and more and will download your transactions from most of your institutions for you. There are other open source alternatives as well that are free but typically don’t have quite as many features. Google “open source quicken”

  20. Eric says:

    Just an extra suggestion – My wife and I follow the same method Trent describes but we put all our receipts in a folder labelled “Current month receipts”. After that month is over we empty those receipts into another folder “1 month receipts” and then do it again the following month into a “2 month receipts” folder. So, we’re always storing current receipts and then holding them for two months. We started doing this because we often need a receipt to return or exchange something but don’t want to keep them longer than necessary.

  21. Jesse says:

    Bill,
    See my above comment. Gnucash is a powerful, open-source software similar to Quicken or MS Money.

  22. Mark McGuire says:

    I like this article, Trent. One of your better works.

  23. claymeadow says:

    here is how we do it, family of 6;

    – fixed expenses are auto pay through bill pay service attached to debit card.

    – discretionary expenses are paid in cash that is withdrawn from atm with debit card. no cash, means no spend.

    the real secret behind the debit card is to be organized; track expenses/incomes, make budget, and manage cash flow.

  24. D Helbling says:

    I’m embarrassed to ask this but here goes…we haven’t balanced our checkbook in ages and are at a loss as to where to start since we’re so far behind. It is very stressful not knowing EXACTLY what’s in the account. What should we do?? If we take our next statement where do we start??

    Thank you

  25. Rusty says:

    Fifty years ago people used to use the really cool thing called…cash. Cash envelopes to be specific. (Food, Dining Out, Fuel, etc.) My wife and I went back to the cash system several months ago and we haven’t looked back. Now, In order for cash to work you have to follow a few basic rules:
    1) Live on less than you make (What a concept!)
    2) Do a zero-based budget (This can seem harder than it is). Spend every dollar you make on paper before the month begins. If you have money left over, put it in any catagory, but don’t leave a balance. You will have control this way.
    3) When the envelope is empty, you can’t spend anymore money in that catagory. Unless you take money from another envelope.
    I know this method is not very sofisticated, but it works. The budget part also helps you cut your lifestyle without a great deal of pain.

  26. Judi says:

    Did you know that the banks are required to allow you to overdraw your account “in case of an emergency”? I recently had an overdraft due to my lousy math, submitted cash to cover it the same day it showed in my online bank activity and was still charged O/D fees even though my account never showed a negative “posted” balance. BOA is now using a different method of reviewing your daily balance by doing the old checkbook method of the date your debit card is swiped. Needless to say once you have been hit with an o/d fee the fees just snowball from there. This episode cost me hundreds of dollars by the time the dust settled. I am going back to the cash method and keep that debit card locked up “in case of emergency”.

  27. Mary says:

    I remember things better when I write them down, so having a paper checkbook is a must for me. I write my transactions in every other night or so, which isn’t often anyway since I don’t spend much. I’ve only had one overdraft and that was because I didn’t have direct deposit for a former job, and the stupid “first $100 applied immediately, rest on next business day” policy kicked my checkbook’s butt when I deposited my check.

    Not having a paper checkbook sounds very scary to me.

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