Why you MUST maintain your check register (and how to do so)
I was faced with a problem recently I never anticipated. I had to write a check out of my business account.
I don’t have paper checks for my business....everything I purchase or pay for, when it comes to my coaching business, can be done online or with a debit card. Except for this one thing...through a clerical screw-up, I had to refund some money to somebody, who had originally written ME a check, shortly after I had deposited theirs. It was from an organization actually, not an individual, and they were pretty old school....they write checks and they receive checks. That’s it. No PayPal, no Zelle, no Venmo, no debit card.
So I had to transfer money from my business account into my personal account just so I could write out an old-fashioned paper check and snail mail it to them. My husband and I DO occasionally use paper checks in our personal life, but still nowhere near as many as we used to.
These days more and more people don’t even HAVE a checkbook with paper checks in it. Especially the millennial generation and younger. Like me in my business, they pay for everything in some digital fashion....debit cards, online bill payment, online purchases, and they Venmo, Zelle or PayPal each other if they owe a friend money.
I think the absence of paper checks is a main cause of an epidemic problem that I see in my clients’ finances....they don’t keep a “check register”, or perhaps a better term these days would be a “log of transactions” for their checking account. I often ask a client, at least certain ones, how much money will there be in your checking account on the last day of the month, before you get paid again? Mind you, I’m not asking them how much is there right now, but how much will be there at some day in the future.
The answer should be as easy as looking at their check register. Instead, they go online and check their balance. But that’s not the answer I am looking for. The current online balance today is the current balance today, not what it will be in a few days or a week or two.
Most people, sadly, can’t even show me their check register, because they don’t even have one or don’t know where it is. Or they won’t show me, because it’s too embarrassing to see that it’s just a jumbled mess and hopelessly out of date and useless.
Here’s the thing: Your bank doesn’t have a crystal ball.
Your bank doesn’t know what’s ABOUT to hit your checking account (income OR outgo). It can only tell you what has happened in the past, and what your balance TODAY is. But you need to have more control of your finances than that. You need to plan where your money goes (that would be called a budget), so you should know what is GOING to happen with your money in your checking account.
So many people fly by the seat of their pants. If they want to buy something, they’ll check online or at an ATM to see what their current balance is, and then decide whether to proceed with the purchase they had in mind, based on that current balance.
But then the next day their car payment (or something else) is automatically deducted.
And then they wonder why they are constantly overdrawn and paying NSF (nonsufficient funds) fees.
Look, folks, you MUST MUST MUST, as a responsible adult, maintain a “check register” or a “log of transactions” for your checking account, with all of your deposits and withdrawals of any type recorded. This does not change if you don’t actually use paper checks. You still need to record what goes into and out of your bank account. Guess what...banks make mistakes sometimes!! And they can’t predict the future.
And you also need to “reconcile” your check register with your bank statement once a month. Reconcile...another word that is foreign to too many people anymore. This is where you check that all the transactions you show for the past month match all the transactions that the bank shows for your account for the last month.
It used to be that your bank statement came in the mail, printed on paper that had a handy-dandy printed instruction sheet for how to reconcile your register with your statement. That way you could make sure that all of your transactions that you THOUGHT you had initiated actually occurred at the bank eventually as well.
Hardly anybody gets statements in the mail anymore. But they are pretty easy to print yourself from your online banking site. However, they often don’t include the instructions for how to reconcile your account.
So here’s what you do, if your check register is nonexistent or hopelessly out of date:
1. Get a new, blank check register. They’ll give a few to you for free at your bank. Just ask. Or if you have an old one with unused pages, start fresh at the top of a blank page.
2. Find out, by looking online at your past account statements, what day of the month that the bank generates your statement each month. It might be the first or last day of the month, but it might not be, too. For our personal account, it’s the 22nd, has been for years.
3. On the next EXACT day that your next statement is generated, look at that statement and find the “Ending Balance” amount. That is going to become the starting balance that you enter in your check register, in the top right corner of the first page of the check register (or of the new blank page you are starting on).
4. From that day forward, enter every deposit and every withdrawal that goes into and out of your checking account, forever and ever, for the rest of your life, amen. That includes all of the following:
a. Direct deposits of paychecks
b. Deposits of cash or checks that you make at the bank, in person or at the ATM
c. Deposits made by other means, like via Venmo, Zelle or Popmoney, from other people.
d. Checks you write and give to people or send in the mail. Hey, it could happen.
e. Online bill payments.
f. Online purchases made with your debit card.
g. ATM withdrawals
h. Transfers of money to other people via Venmo, Zelle, Popmoney and the like.
i. Automatic bill payments
j. Debit card usage at brick and mortar stores or gas stations.
k. Transfers to or from your savings accounts.
l. Interest payments credited to your account.
m. ATM fees charged to your account.
n. Any other transaction type that I may have forgotten.
5. Every time you record a transaction, take the extra 10 seconds to do the arithmetic and recalculate the balance after each transaction. You have a calculator on your phone, and your phone is always with you, right?
6. For this first month especially, keep an eye on your transactions in your online banking website. Be on the lookout for those automatic transactions (like automatic bill payments, or direct deposits of pay), and record them as soon as you see them online, if you haven’t already.
7. As time goes on, you should have a list of these automatic transactions that recur every month, that you keep handy with or near your checkbook, so you can start recording them AHEAD of when they actually occur. That way you are anticipating changes in your account balance that will affect how much money you actually have available to spend.
How to reconcile
8. Once a month, on or very soon after the day that your statement is generated, print out your statement and grab your check register to reconcile the two:
a. In the column in your check register that has a checkmark at the top of it (the skinny column between your withdrawals column and your deposits column), check off each transaction that appears on your statement, and also check it off on your statement.
b. For any transaction that is on the statement but not in your check register, enter it in your check register (assuming you know it’s legit and you just forgot it before).
c. For any transaction in your check register that does not appear on your statement, CIRCLE the spot where you would have put a check mark. Make it heavy so it stands out on the page.
d. Start with your ending balance and add to that number the total amount of deposits for which you have circled the checkbox, because they have not yet appeared on your statement. (These will likely be future deposits you are expecting soon but have recorded already.)
e. Then subtract from that number the total of all withdrawals for which you have circled that checkbox because they haven’t appeared on your statement. These would include checks you wrote that have not been cashed, automatic payments that you recorded before their scheduled day, and the like.
f. The number you get from the above arithmetic should equal the final balance in your check register. If the numbers don’t match, calculate the difference, and use that number to play detective to find either the math error, or the transaction that has been missed.
g. Once you’ve corrected any errors, and the two numbers match, draw a heavy line across the page in your check register just below your last entry. Make sure it stands out. This will mark the point in time where you know your account was balanced, accurate, and reconciled with the bank. In the future, any errors you are looking for in future reconciliations will not have occurred above that line.
If you still need help with this, please contact me through my website, www.moneycoachbev.com. I’m here to help.