Managing a checkbook
Why a checkbook?
It helps keep you from expensive overdrafts. if you do it right, it will keep you from overdrafts and from having to check your balance at the bank all the time at every transaction and always worrying.
How the whole idea works: the checkbook is a virtual bank account that tries its best to parallel your real bank account.
A check register fixes a problem your real bank account hides from you - it takes TIME for a deposit to get into the bank and become "posted" (the money actually put into your account). It takes even more TIME for a check to be "cleared" (the money actually taken from the bank) - it can be as much as 2 weeks or a month. If you look at the bank's balance and trust it, those uncleared checks may get subtracted from your bank account on the day that you planned to make that big purchase or pay that big bill.
When the check does clear, the bank account can go negative - a bad thing for your credit rating. All because of time delays. Some checks may not clear for several months.
The solution - a check register: you keep track of all income and outgoes, including the 'extra' stuff (like bank charges & ordering checks). Anything that affects your real bank account is what you put in your check register. No more surprises, unless you add or subtract wrong, or misread an amount.
how
Most checkbook 'registers' have a little set of instructions on the front on how to use it. I like using 2 lines for each entry, so I have at-a-glance documentation of what's been going on.
Spreadsheets are great for checking the correctness of your balances (so are programs like Quicken & Microsoft Money). =C1+B2-A2 is a good formula for the balance column. Put in the following, and we'll assume you have $1000 balance to start.
| A | B | C | D | |
| 1 | check# | payment | deposit | $1000 |
| 2 | =D1+C2-B2 | |||
| 3 | =D2+C3-B3 | |||
| 4 | =D3+C4-B4 |
Here you take the balance from
the line above it, add the
amount of the deposit(credit), subtract any payments(debits), and put the total in the 'Balance' box (the rightmost
column) on the same line.
Once you've typed the formula in D2, hit the Enter↵ key. this will put the formula in. click on D2. Now we need copies. Drag the lower right corner of the cell selection down about a screenful of cells. it's OK if it scrolls a lot. let go of the mouse.
Now we need to go back to the top of the spreadsheet. There are 2 ways to do it. Hold down the Ctrl key (lower left side of the keyboard) and hit the HOME key (above the 4 plain arrow keys). This will take you to the top of the spreadsheet.
You can also use the mouse to go to the top of the spreadsheet by dragging the scrollbar up to the top.
You are done. Now just fill in check stuff and the balances will be calculated for you. If you mis-type something, or you missed an item, your electronic balance will show it when you compare it to your check register. It could also show a problem with your check register.
The biggest mistakes on check registers are:- Forgetting to put in items — checks, deposits, ATM items & fees, monthly bank charges on your account, bank fees, monthly bank interest.
- Putting amounts in the wrong column - such as a deposit listed in the payment/debit column, or putting a check in the deposit column.
- Double entries: Putting an entry in twice, possibly on different pages.
- trusting the balance on the ATM slip (can be 3 days off) - checks may not have cleared since the ATM got news of the balance.
- trusting the balance on your monthly bank statement.
- entering in $20 ATM's twice - the solution is to put down the little unique ATM transaction or semaphore numbers on the slip (about 4-8 digits) onto the check register, and mark the ATM so you know it's already been put into the check register.
| Check# | Date | Description of Transaction | Payment/Debit(−) | Code | Fee(−) | Deposit/Credit(+) | BALANCE:600 |
|---|---|---|---|---|---|---|---|
| 1234 |
2/12 |
Glinko Apartments rent |
550 |
50 | |||
| 2/12 | Zipcoco company pay | 2000 | 2050 | ||||
| 2/12 |
ATM withdrawal #12345 groceries for work |
21.50 |
2028.50 |
What is shown here is a little check register, filled out.
The balance column shows the total amount you really have in your bank, AFTER
an items has been added or subtracted. You can't see the line above
check#1234, but if you could, the balance would be $650.
After making a $550
payment for the rent with check#1234, $100 is left, and that has been put in the
balance column ($650 − $550 = $100).
Then, a paycheck came in, $2000, and this
was added to the balance ($100 + $2000 = $2100).
Then a trip to a bank machine
(ATM), a withdrawal of $20 was made, with $1.50 charge from the machine (ugh),
leaving $2078.50 in our 'virtual bank' (check register).
reconciliation
You should reconcile your checkbook every month with the ending balance that the bank shows. The bank includes a sheet on the back of your statement to reconcile your check register. Hopefully you get a paper statement to reconcile with.
You sum up all your check register items that don't show up in your bank statement (checks/debits/ATM-withdrawals) and that is set as one calculation. Your deposits are another calculation. You also factor in the bank balance from the statement, and the balance from your check register (you should keep that current). I have a javascript-driven reconcile program/web page here, or you can download this reconcile.xls Excel Spreadsheet, which is simpler to use. Also, there is a little convenient reconciliation form on the back of most check statements, where you can do the calculations yourself. If it is not big enough, just take the general concept into practice and come up with your own, just make sure it works the same.
if you were to try to reconcile based on your online register, people don't usually do that and most consider it a mistake, but it is do-able. you can do that of course, it just means that you have to go by that online bank balance as an ending balance rather than using the paper one, and you would also use the online list of items to check off (print it out). be warned, however, that it messes you up for next month's reconciling, because you will be re-counting some of the items twice... You would need to make sure you don't count those items a 2nd time when your next statement comes by going through and comparing both lists.
Every once in a while you find that you have made a mistake on your check register way up above. I usually resolve this by making notes on the wrong entry and by also making similar notes in an adjustment entry at the bottom of the check register.
- If you put a deposit in the payment/debit column, it will show up in your reconciliation as a check register balance being off in the negative direction by double the amount of the deposit. you should make an adjustment by putting double the amount of the deposit in the deposit/credit column.
- If you put a check/atm in the deposit/credit column, it will show up in your reconciliation as a check register balance being off in the positive direction by double the amount of the check. you should make an adjustment by putting double the amount of the check/debit/atm in the payment/debit column. then it is probably a good idea to check your bank balance!
- if you enter an item with the wrong amount, it will differ from your statement, and it will show up as a difference in your reconciliation balance.
for example:
| Check# | Date | Description of Transaction | Payment/Debit(−) | Code | Fee(−) | Deposit/Credit(+) | BALANCE:600 |
|---|---|---|---|---|---|---|---|
| 1234 | 2/12 | Glinko Apartments rent |
550 | 50 | |||
| made adjustment below | |||||||
| 2/12 | Zipcoco company pay | 2000 | -1950 | ||||
| made adjustment below | |||||||
| 2/12 | ATM withdrawal #12345 groceries for work |
21.50 | -1971.50 | ||||
| 1234 |
2/12 |
Glinko Apartments rent |
1100 | -3071.50 | |||
| adjustment for above | |||||||
| 2/12 | Zipcoco company pay | 4000 | 928.5 | ||||
| adjustment for above | |||||||
glossary
-
posted:
checks that have cleared the bank.
debit column:
payment column
credit column:
deposit column
check register:
a recordbook you ask for from your bank (it's free), which allows you to record your transaction date, description, payment amount, whether it was posted (checkmark), fee, deposit amount, and the current balance. the current balance is not your bank balance! it is the money you have left after you have written checks. this is your "real" balance. this balance tells you, if the bank were to suddenly post all of your transactions, how much you would have in the bank! This is why we have a check register. it's so we avoid overdrafts (our bank account going negative, and the associated $35 charges when the account goes negative or another transaction posts).
check register wallet:
a vinyl (plastic) holder for your check register with flaps thick enough to prevent writethrough (a condition where writing on one check writes through to the next check, maybe a third check, and so on, if you are using duplicate checks). it also protects it and makes it easy to identify, and holds your checks below (the big flap), and check register above. these are free from your bank, you just ask for one.
Overdrafts:
it's about $35 when the account goes negative or another transaction tried to post. it's what banks charge you when your account goes negative. this is something youwant to avoid because the costs get high fast.
checkbook/check register reconciliation.
this takes your bank's balance from your last statement, your current balance from your check register, and your outstanding items (items that have not been listed in any of your bank statements), and figures out if the result is zero ($0). if it is, congratulations, you have reconciled your account for this month. you should do this every month. If it does not reconcile, try to find the items that are missing or were entered incorrectly. you may have also calculated your checkbook balance incorrectly (it happens) - you can check it with a simple spreadsheet that subtracts one column and adds the next column from the previous balance and stores the result in the current balance. then copy that formula down about 200 or 300 rows and you are set.=D3+C4-B4 where b column is payment, c column is deposit, and d column is balance, just like in your check register. the top balance number is your starting balance, for instance, from the start of the last reconciled month or if you have never reconciled, your first statement. You may have to make an adjustment to your balance by some amount.