Balancing Your Checkbook in the Era of Debit Cards and Online Banking

One of my mother’s monthly tasks when I was growing up was balancing her checkbook. Whenever a bank statement would arrive in the mail, she’d pull out her checkbook and checkbook register and spend time at the kitchen counter with the papers all spread out, comparing her checkbook notes with the bank statement to make sure everything matched up.

I knew why she did it, likely because she told me several times: she wanted to be sure that she knew every expense coming out of their checking account and that all of the checks she had written had been received by the bank. The process served as a way to simultaneously make sure that she knew where every dollar was going and to make sure that she didn’t overdraft her bank account.

Today, however, many Americans do their banking business in a very different fashion than this. If you’re anything like me, you pay a lot of bills automatically, pay a few others by using online banking and run a lot of your ordinary expenses through a credit card or a debit card.

With such a radical shift in how most people handle their banking business, what exactly can we take that’s useful from the old method of balancing one’s checkbook?

The best place to start is with the goals.

The reasons for balancing one’s checking account remains the same today as it was in the past.

The reasons why it was valuable to balance a checking account back when I was a kid watching my mom go through the papers all over the kitchen counter still remain true.

Just as it was then, overdrafting your checking account has bad consequences and it should be avoided if at all possible. Balancing your checking account is a good way to avoid this, even if the techniques today are far different than they used to be.

Another valuable reason: balancing your checking account is a great guard against identity theft. Since you’re carefully evaluating the transactions in your accounts, it’s much easier to catch fraudulent transactions and nip them in the bud.

In addition, checking account balancing provides a great opportunity to review your spending. Since you’re going through all of your transactions, you have a great opportunity to make sure that you’re not spending more than you’d like on forgettable and unimportant purchases.

Not bad for something you can do in perhaps 30 to 45 minutes, once a month.

Here’s how to get started.

First, gather up the papers you need, along with your computer or mobile device.

I find it much easier to do this with a laptop than with my phone, but you can do this with your phone. The reason a laptop is easier is simply because of the screen space it affords and the ease of moving to different browser windows or tabs.

If you use online banking, log on to your online banking service. Do the same with any online credit card accounts you have. If you don’t use online services, you can still use paper statements.

You’ll also want to have any paper bank statements or credit card statements you’ve received in the last month or two, as well as some blank pieces of paper and something to write with. If you write any paper checks at all, grab your checkbook, too, especially if your checkbook keeps carbon copies of the checks.

You should also gather up any and all receipts that you have from expenses over the last month. It’s hard for this to be perfect, but gather up what you can find. Over time, it’s a good idea to get in the habit of simply saving all receipts in a single place, like a manila envelope.

First, go through each transaction in your last bank statement and make sure you know exactly what it is.

Go line by line through your bank statement and make sure that you know what each and every line in that bank statement refers to. You should know what each automatic transfer is for, each online bill payment is for, each check is for, and each ATM withdrawal is for. Every single line in your bank statement should be a known expense.

The reason for this is to make sure you know where all of your money is going and to identify any potential fraudulent expenses charged to your account.

Personally, the act of going through all of these transactions usually identifies some expenses that I know to be fairly unnecessary. If I’m having a hard time recalling what that expense was for, or if I do recall it but it gives me no emotional response at all and it wasn’t a pure necessity, then it was probably a bad expense, and that’s something I should try to avoid in the future.

This process is also a great time to identify any potential fraudulent expenses — things that you cannot recall at all and don’t have a receipt for. This is why it’s good to have receipts for everything, as you can cross-check any expenses that you’re unsure about with your collection of receipts for the month. If you can’t recall that expense and you have no receipt for it, then you know something’s up. The only catch is that receipts only work if you actually keep them all.

Make sure all paper checks that you’ve written are accounted for.

If you’ve written any paper checks in the last month, make sure that they all appear in your bank statement with the amount that you wrote them for.

If you write more than a few checks and you don’t have carbon copies of your checks, then you should be keeping a check register to help you keep track of the checks you write. We write paper checks so infrequently that our carbon copies suffice as a check register.

It’s worth noting that I’m not a big fan of handwritten paper checks in today’s age. While they do still fill a purpose, they’re pretty insecure. If you do send checks through the mail, I highly recommend taking these steps to send money securely through the mail.

While you’re doing that, make a list of all transactions in spending categories you’re concerned with.

Whenever I’m reviewing my bank statements and credit card statements, one thing that usually happens is that I start to notice a few expenses that I either regret or simply don’t remember. Those are spending mistakes. if those expenses brought me so little value that I don’t even recall them at all or don’t recall them with any fondness,

Whenever I notice an expense that fits this, I make note of it in some fashion. My preferred method is to either use a highlighter on a printed copy of a statement or else to simply write down each transaction that fits, along with an amount.

Why do I do this? Any unnecessary expenses that bring no lasting value into your life are expenses that can be and should be cut. I want to make note of those expenses so that I can be aware of them and avoid them in the future.

This is particularly true if you can identify patterns in those unnecessary expenses. For example, when Sarah and I lived in our old apartment, I used to stop at the convenience store nearby all the time. It was an almost daily occurrence for me. Yet, when I looked at all of those expenses on our bank statement, I realized that almost all of them gave me no lasting value or joy. It was that realization that led me to simply cutting out my stops at that convenience store and instead going home for an after-work snack, which eventually just turned into starting supper preparation for our family.

Now, repeat the same steps with each of your credit card statements.

Every single step above should be repeated for each of your credit card statements (except for the comparison with written checks, obviously).

Go through each of your credit card statements and make sure you know what every single transaction represents. Ideally, you have some kind of a receipt for each one of them, which can help if you aren’t sure what a specific transaction actually is.

If you notice transactions that you don’t really remember or that don’t make you feel good about them now (you don’t have any emotional response at all, or they make you feel a bit guilty or ashamed), take note of them. If you start to notice any patterns in those expenses, they’re probably pointing you toward a behavioral change you should be making to improve your financial state.

What should you do if you find transactions that you didn’t make?

It’s likely that you’ll eventually come across transactions on your bank or credit card statements that you don’t recognize. What do you do?

First, contact the bank or credit card issuer immediately. Find out some details on the expenses in question and make absolutely sure that you didn’t authorize them. Falsely claiming that expenses were fraudulent when you didn’t do any due diligence is bank fraud and will not be treated kindly.

If you find that these expenses truly were false, follow the procedure that your bank or credit card issuer suggests. Likely, this involves simply getting a new account number or credit card number. This will require you to change any external automatic transactions you have that are related to those accounts. For example, if you have a paycheck direct deposited into your checking account, you’ll need to contact your workplace and change that information. Similarly, if you have money regularly withdrawn for a Roth IRA or your child’s 529 account or some other expense, you’ll need to change that as well. You can walk through your last few statements to figure out what automatic transactions are occurring so that you can get them changed.

You may also want to check your credit report to make sure there isn’t a broader identity theft issue going on. You can do this by visiting the Federal Trade Commission’s official portal for credit reports. The federal government guarantees each citizen a free annual check of their credit report from each of the three credit bureaus, so go there and check your credit report from at least one of the bureaus.

Make sure there’s enough money in your checking account to cover any known upcoming automatic transactions and bills you need to pay.

Once you’ve gone through all of these steps, the next thing to do is to make sure that you’re in good shape financially for the coming month.

Evaluate all of your automatic bill payments and transfers that will be taken from your account in the coming month. Do you have enough money in your account to cover all of them? If not, are you definitely going to be paid before all of those transactions occur?

Similarly, evaluate all of the bills you’re going to have to pay this month. Do you have adequate income to cover all of them?

The goal here isn’t to get a picture-perfect look at your budget, but simply to make sure that you’re not going to overdraft your checking account in the coming month. If you know expenses are going to hit that account, you should make sure now that there will be adequate funds to cover them.

It’s a good idea to keep a buffer in your checking account to ensure you never come close to an overdraft.

Our family’s strategy for making sure we never overdraft is simple: we just make sure we have a nice buffer in our checking account at all times. For us, that’s a month’s worth of all bills and living expenses.

For example, on August 1, I want to be able to see enough money in our checking account to cover all of the expenses for August with enough to cover most of September’s bills as well, with enough coming in during August to cover the rest of September and some of October. That full month of expenses ensures that if things get difficult, I can be sure that the bills will be paid while I make other financial arrangements.

This can be a difficult target for many people to hit quickly. After all, America is currently a nation where four out of five workers live paycheck to paycheck. One of the best ways to start moving away from that is to start building a checking account buffer to ensure that you’re never overdrafting. Just aim to increase that buffer by a little each month. Aim to have $25 more in extra funds in your checking each month compared to the previous month, or $50 more, or $100 more if you can afford it. Ideally, you want to reach a point where you could receive no income for a month and still not overdraft your checking account while still paying your bills.

It’s a good idea to start a “receipts envelope,” not just for this practice, but also for taxes.

Going through your checking account and credit card account statements is a lot easier and more reliable if you have all of the receipts for your purchases and withdrawals for the month readily available. That way, you can just check the “receipt envelope” if you come across an expense that you’re unsure about.

Furthermore, having all of your receipts together makes it much easier to file taxes if you itemize. You can simply go through all of those receipts, identify and set aside which ones point to tax-deductible expenses, and you have all of the records you need for an accurate tax return.

Just get into the habit now of saving all of your receipts and putting them in an envelope. I find it’s helpful to have a single manila envelope for each month. I usually date it with the month and date in big bold letters on the front and stuff it with receipts, and then start a new envelope each month. At the end of the month, I usually also include some kind of summary of my online spending, too, by writing down or printing off receipts of recent orders from online services.

If you’re not doing this already, consider switching to online banking and online bill pay.

The sheer convenience of online banking and online bill pay really shines when you’re balancing your checking account. For starters, you no longer have to do it on a monthly basis – you can do it weekly, or do it on whatever day of the month works best for you. You can also do most of it electronically at your convenience, especially when you also have online access to credit card statements.

Almost all of the statements and bills I get are electronic, so most of this process for me is done entirely digitally. I do like to manually write down any expenses that I’m unhappy with because I find the act of writing them down makes me think about them more carefully and is much more likely to get me to cut out those expenses going forward, and I do find receipts useful for cross-checking expenses I’m unsure about, but aside from that, almost all of this is done electronically.

The sheer amount of time, paper and clutter saved that comes from using online banking is tremendous, and it really shines when you’re reviewing your checking account.

Regular reviews of your checking account are a great way to avoid overdrafts, identify spending issues, and avoid identity theft.

The act of simply reviewing your accounts once a month can be an enormous money saver, particularly if you’re prone to overdrafts on any sort of frequent basis. By doing this, you’ll quickly eliminate a lot of overdrafts, find obvious ways to cut back on spending, and also find identity theft concerns before they turn into crises.

It only takes about half an hour once a month, and if it does nothing more than help you find one change you can make to your spending or eliminate one occasional overdraft or find even one bogus charge, it more than pays for itself.

Good luck!

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.