What Does It Mean to Balance a Checkbook?

At first glance, “balancing a checkbook” can seem like an antiquated notion when considering all the high-tech solutions available to track and manage our accounts. After all, any bank will offer online banking where we can check our balance and transactions, and there are plenty of software offerings to help us manage our budgets and track spending. So why would we need to balance our checkbook manually? What does balancing a checkbook even mean? 

Balancing a checkbook is the process of comparing your personal check register with your bank statement and ensuring that you and the bank have the same balance on record. It is the way you ensure that you and the bank agree on what your current account balance should be.

Balancing your checkbook is also part of being a responsible manager of your personal finances, as we will discuss in more detail. In this article, we’ll look at what balancing a checkbook is, reasons why you should still balance your checkbook even today, and how to it.

What Does Balancing a Checkbook Mean? 

Balancing your checkbook involves comparing your check register with your regular bank statements to ensure no discrepancies.  

When you balance a checkbook, you start with the final balance your bank statement has and then check this against the current balance you have in your checkbook register. When you find the balances don’t match, you use the two records, your own register and the bank’s, to identify where it is different and why. 

This process also requires the regular habit of recording your transactions in your register as you make them.

Why Should You Balance Your Checkbook?

There are several reasons why balancing your checkbook is an important practice.

You Can Catch Accounting Mistakes

One reason balancing your checkbook is important is that if you merely check your bank statements for accuracy each month, you’re relying on that bank statement as the source of truth. If there is a mistake in your bank statement, you’re likely not to notice it. We tend to default to believing the bank statement if something doesn’t quite line up with what we remember. 

If you have been documenting each transaction in your checkbook as you make it, however, you have a source of truth that is far more reliable than your ability to recall each transaction from memory.

Banks rarely make accounting mistakes, but they do happen. When they do, you usually have only 60 days to report the error. After that, your bank is likely to refuse your request to correct it. Balancing your checkbook at least once a month will ensure that you will catch such accounting mistakes with enough time to respond. 

You Can Identify Fraudulent Activity

The biggest inaccuracy you are protecting yourself against by balancing your checkbook is fraudulent activity on your account. 

Identity theft is rampant, and identity thieves who have gained access to your bank account will often test the account security by getting a small transaction of a few dollars or cents. If it doesn’t raise any alarm bells, they may start pulling larger amounts out as they feel more emboldened to do so. Balancing your checkbook will help you catch these micro-transactions early and head off bigger problems down the road.

Avoid Overdrafts

Another problem you protect yourself against is an overdraft. Balancing your checkbook includes logging ATM visits, debit card purchases, and transfers on your account. You will be more aware of how much you have in your account at a given moment, which will help you avoid mistakes like bounced checks or trying to transfer or make payments from your checking account when you don’t have sufficient funds to cover the transaction. 

When these things happen, your bank will charge you a fee. These fees will quickly add up to deplete your account balance and cost you dearly in the long run. 

How to Balance Your Checkbook

Gone are the days when you had to wait for your bank statement to arrive each month. Now we have instant access to our bank statements through online banking systems and can immediately check your balances as well. 

Still, although this particular task may look different now than it did in years gone by, the fundamentals have carried over to today. 

The steps below assume you are using a paper checkbook register, but if you prefer, you can follow the same steps using a digital spreadsheet application, such as Microsoft Excel or Google Sheets.

Getting the Available Balance

Let’s start by having a look at the current balance of your checking account. Log onto your bank’s website or mobile app, and look for a listing for the Current Available Balance or something similar. This will be the number we will start from as a baseline, and it will be the one we will seek to match in your register. Write this number down at the top of the page on your check register.

Record Pending Transactions

Start by noting any transactions that are listed as pending, meaning they have been logged by the bank but have not yet cleared. These can be debits (withdrawals, payments, or transfers out of your account) or credits (deposits, refunds, or transfers into your account). 

You will want to write:

  1. The date of the transaction
  2. The amount
  3. The check number (if it was a check) 
  4. A brief description (such as “Homeowner’s Association dues”)

It’s a good idea to note down the payee in the case of checks to help match them up more easily. Many online banking applications have images of your cashed checks you can view to help you identify the right one.

Calculate Debits and Credits

For each debit that you record, subtract the amount from the balance you logged at the start and write this new amount on the line. For each credit, add the amount to the running balance and log that in the same line as well. 

Repeat this process until you have logged each transaction. Make sure you include fees you pay on the account (including maintenance fees and overdraft fees) and any interest earned.

Stay Current

Whenever you make a transaction from now on, such as writing a check, making a payment online, or transferring money in or out of your account, make a record in your check register to keep it up to date. 

Ensure you log the running balance as you go to avoid losing track of where you stand after each transaction. At least once a month, but preferably every two weeks, check your current balance on your account online and compare the bank’s record with your own.

If everything lines up, you have a balanced checkbook. If the numbers don’t add up, you will want to compare your bank statement with your checkbook register and identify where the difference lies. 

Usually, this will be an error on your part, so assume it is until you have confirmed to the best of your ability that it isn’t. It’s common to miss a transaction or have the wrong amount recorded. Backtrack to see if you can locate an obvious or more subtle error, and if you cannot find the discrepancy, it’s time to contact your bank for help.

Final Thoughts

Despite all the ways we have today to automatically log transactions online through aggregators or online banking applications, attempting to record your transactions as you make them and match them against your bank records remains an important skill. Skipping this task will leave you vulnerable to banking mistakes or financial fraud and prone to overdraft and other mistakes you could have easily avoided. 

It’s easy to think of balancing a checkbook as something we don’t have to do any longer, but don’t fall into this trap. Practice this habit regularly, and you’ll soon find your confidence in your financial situation is increasing along with your awareness of your spending habits. Staying on top of balancing your checkbook will make you a skilled manager of your personal finances and give you a significant advantage in achieving your financial goals.