Have You Reconciled?
Posted by Gail | Filed under Money Management
It’s a lost art. Most people don’t even know what it means. Yet doing it has a number of significant benefits. What the hell am I talking about? Reconciling your bank account, that’s what.
Sometimes referred to as “balancing your bank account,” reconciling is the process of matching what you think you have with what the bank says you have in your account. Some people reconcile monthly – if you run a small biz (or a big one for that matter) you should do it at least this often. Other people who are good at tracking their money only reconcile quarterly to as a check-and-balance on their record-keeping. The more often you reconcile the easier it is.
Why should you take the time to reconcile your bank account(s)? Well…
If you don’t, you’re at the mercy of whatever the bank says is in your account.
Reconciling also means you’re less likely to go into overdraft and rack up the fees associated since you’ll know what still has to clear your account and you won’t spend that money on something else.
It’s a great way to catch unauthorized charges or mistakes on your account.
And it means you’re much more likely to pay attention to what you’re spending your hard-earned money on because you’re regularly looking at all those debits!
I reconcile my business account and my personal chequing account monthly… usually. And I sometimes find a small thing that I’ve overlooked in my record-keeping: the interest that I need to credit, a bank charge for some one-time thing I did that made me go over my monthly fee, or an auto-debit where the amount changed unexpectedly. Yes, this can happen.
When you reconcile you’re matching what you know with what the bank knows, and taking into account any discrepancies. If you do it routinely, you’ll always know just where you stand and you’ll also know if someone has made a mistake somewhere along the way.
To reconcile:
1. Take a piece of paper and divide it into two columns. Title the left side MY RECORDS. Title the right side BANK. Or you can bookmark the Reconciling Your Bank Account Worksheet under Resources and it’ll do all the adding up and subtracting for you.
2. Under MY RECORDS, write the amount you have in your account according to your records as of the date of your last statement. So if your statement date is November 28th, then you would write under MY RECORDS the balance you have in your records as of November 28th. Be careful not to accidentally add in things dated later because you’ll throw the numbers off.
3. Under BANK, write the final balance that your bank statement shows.
4. Check off all of the items in your records against all of the items on your bank statement that match. Again, be careful. I’ve had months where I’ve had debits for exactly the same amount twice in the month, so you have to check both the amount and the payee.
5. Under MY RECORDS list any items from your bank statement that you don’t have in your records. Bank fees and interest are the two most common ones, but there may also be overdraft interest and fees, and bank machine fees (say it isn’t so!) you may not have kept track of. Or you may have forgotten to deduct that cheque for piano lessons.
6. Under BANK, list anything in your records that doesn’t appear on your statement. It is possible that the cheque you wrote on November 24th for your carpet cleaning has not yet cleared your account. There might be several cheques that have not cleared. Or there might be deposits that you’ve just put into the account that don’t yet show up on the statement.
7. Total the two columns. Remember: If it is a credit (i.e., a deposit), you add it to your balance. If it is a debit (i.e., a cheque you wrote or a debit or credit card transaction), you subtract it from your balance.
8. If the two amounts are the same, you’ve reconciled, your account is balanced and your job is done. If there is a difference, you know something is wrong. You’ll have to dig a little deeper. You may have miscalculated (if the difference is divisible by 9, you may have reversed your numbers). Or there may be a mistake on the statement or in your records. Verify everything until you balance.
9. Make any corrections/additions/deletions to your records to bring them up to date.
If you do this every month, you’ll find it a lot easier to keep track of stuff. Wait a couple of months and the mistake you made back when won’t be as easy to find. Get into the habit of reconciling when you get your bank statement or updating your budget tracking each month and in no time at all you’ll have the system down and it’ll take just minutes to complete.
January 20, 2010 at 7:54 am
Get a free cheque register from your bank and keep track of all the debits and credits…I do mine every pay day…my pay goes in and then I mark out all the debits that need to go out in that two week period..the balance in my register is what I have to “spend”…not what the account says…then I check the account on-line to ensure all goes through as expected…easy peasy and only takes minutes but can save hundreds!…(nsf fees are 42.50 a pop now!)…by the way, I do the same with my credit cards…each purchase is recorded and checked against the statement…
January 20, 2010 at 8:00 am
I could never balance my bank accounts manually since I’m so terrible at math. I couldn’t properly balance my account to my cheque book and then when debit cards and internet banking hit their stride, it was even worse. So instead of frustration everytime the statements came in, and hours taken to try to balance and find my adding/subtracting mistakes, I bought a home financial software.
I download transactions from my bank accounts and credit cards every few days into the software in seconds, I do “virtual” transfers between accounts using the software to take money away from the balance in the chequing account so I am always covering what goes on the credit card even though the money won’t really be transferred until the bill comes in. That way I know exactly how much cash is really available for use.
When the statements come in, I use the reconcile feature in the software and balance the accounts in minutes and print out the reconciliation reports. Then I file them. It’s such a breeze I’ll never go back to the frustration of doing it manually.
It really helps me manage my money and gives me an accurate picture of where I am at financially on any given day.
January 20, 2010 at 8:10 am
My mom used to do this, obsessing over the very last penny. She always found it. I use this convenient thing called online banking and keep track of my debits as I go. I don’t really understand the benefit of recording the transactions elsewhere. I log on, verify that all the transactions are mine and log off. I do this at least 3 times/wk. I’ve never seen an errant charge or been in overdraft. That might be because I have a tight budget and rarely use cheques, but still.
January 20, 2010 at 8:23 am
I also check the online version of my bank account several times a week. By the time my monthly bank statement comes it’s old news and seems completely irrelevant. I am planning to cancel the paper bill. I plan all spending for the year in advance on my spreadsheet. Every few days I match up the real costs that have gone through and replace my planned amounts with the actual amounts. I find if I keep on top of it, it’s much simpler. If it balanced at the end of last week I only have to update the items for the current week. Even on the 1st of the month which is the week with the most transactions, there won’t be more than a dozen rows to look at. I used to balance everything up monthly and had to set aside an hour or more to get it done. Now I pop in a couple of times a week for a few minutes. It probably takes just as long, but it doesn’t feel like a big job now, and the up side is that I always know if we’re on track.
January 20, 2010 at 8:26 am
I must agree with Lynn.
I don’t have enough coming & going from my bank account to have to reconsile. However, I am very aware of what comes & goes and simply use online banking for it.
I do recommend reviewing your credit card statement monthly to confirm all is correct. I put almost all of my purchases on credit and pay it off monthly so I’m very cautious of the statement information.
January 20, 2010 at 8:36 am
I keep an excel spreadsheet with everything that will be coming and going from my account in the next 2 months. I check my bank balance online every morning, as well as my credit card statement (we use it for all our spending to get the points, then pay it in full at the end of the month). I always know what charges should be there from the day before, or check with my husband if there’s something unfamiliar – as it’s likely his.
I am perhaps a bit too obsessed with checking my banking – but I never miss a bill or have an incorrect charge!
January 20, 2010 at 8:57 am
I check our bank accounts, etc every morning as part of my online routine. Makes life a lot easier for me. It only takes a matter of minutes, and we have rarely had a problem. I guess that’s the banker in me. I was a bank administrator for over 16 years, and it never truly leaves your mindset.
January 20, 2010 at 9:17 am
I am pleased to say that this is one thing that I am on top of. I go on-line everyday and check my bank balance. I have a manual cheque register. So, this way I know what is actually in my account.
I also track my expenses on an Excel spreadsheet. I have done that for over a year now. I used to use a program called Quicken, which would allocate expenses into categories, but I can do the same in Excel.
Thank goodness I am doing something right!
January 20, 2010 at 9:28 am
I Reconcile every week when I inpuit all of our transactions from the online bank statement into our budgeting tool. if those transactions don’t match what we think spent we look harder at the transaction.
regards,
Jason
January 20, 2010 at 9:34 am
I do this too. We use an excel spread sheet. It is wonderful when you run a home daycare because I could see how much I was spending on food, toys for the kiddies, activities etc. It was hard to laugh at the end of the year when all the caregiver’s were agonizing over doing their taxes when I was ready to go:)
January 20, 2010 at 10:21 am
When I was younger and spent what I had in the bank with no thought about it, I had a run in with the bank. THEY put money in my account and not knowing how much should be in there I SPENT it. Once they found the error they wanted to take it all out at once which would have had my rent and loan payment bouncing. I had to fight and fight hard to have them take it out in smaller amounts that I could afford. The bank blamed it all on me since I should have known what I should have had in my account. They didn’t want to take any of the blame for it.
Hard lesson learned but ever since then I check what goes in and what comes out. Since I don’t write cheques and have to wait for them to clear, this is a lot easier then it used to be.
January 20, 2010 at 10:54 am
I think it’s really interesting how many people in these comments use a technological solution instead of a pen-and-paper one. I’m the same – I download all my bank transactions to Wesabe.com every other day, then tag the transactions and make sure they’re all mine and correct. I very, very rarely use cheques, so no issue there.
Regardless of method, I certainly think reconciling accounts is a must – banks do make mistakes sometimes.
January 20, 2010 at 11:49 am
I’m a weekly kinda person, with a redo every month when the statement comes in. Since moving to the jars it’s much easier to see this type of thing and find where the problems occur.
January 20, 2010 at 11:53 am
I also look online, but instead of using a computer program for my account I am writing it out and then putting it in the different categories. I am finding because I use a computer all day that I seem to pay more attention if I have to write things out by hand. Since I started doing this, I have become really conscious of how I am spending the money.
January 20, 2010 at 12:07 pm
I use a cheaque register to keep track and to take cash out for variables spending and to pay bills on line when other automatic transactions go out account.. I check the online statement once a week and when I doing the budget before payday to make sure the other ones have been payed and account balance..
I tried quicken program and other computer programs but I found Pen and paper is faster and easier with a calculater than always turning computer on and waiting to open the pages…
A few months ago I over looked a transaction that wasn’t taken out and used the few hundreds on other things and never noticed it was for something else untill I got a phone call.. So now I just leave the bills payments in bank. So it doesn’t happen again!
At the end of November the teller wanted me to raise my bank fees for Dec. shopping but I told her I’m using cash that’s all. No over draft or no more extra transactions for us.. I also don’t use my savings account for now so I don’t pay bank fees for the last few months.. YAA!
January 20, 2010 at 12:08 pm
It’s interesting to read about all of the different ways everyone here checks up on their bank balances. I guess it doesn’t matter so much how you do it – just that you do it. I happen to use Quicken’s Reconcile feature. I find that reconciling forces me to look at our spending in more detail and sometimes lets me know when we start going overboard in a certain area.
January 20, 2010 at 12:19 pm
I can’t handle the reconciliation process you described, but last year set up my own system which works…
1) I use debit for everything possible (they’re free for me @ pcfinancial)
2) keep all receipts in my purse
3) every other day or so, I enter the receipt amount into spreadsheet/budget tool
4) note on my budget what cheques/auto debits I expect to come out this pay period
5) check my online statement to make sure I haven’t missed anything or been charged anything strange
so far, so good!
January 20, 2010 at 1:21 pm
I used to write things down….before online banking came into existence. I do not have paper copies of my bank statements sent to my house anymore. Like other onliners, I do check my accounts online every couple of days. I’ve never accounted a problem
However,
Like someone said I don’t have alot coming or going into my accounts except a couple of bills and OSAP. I expect that one day when I use banking more often I will check a bit more finely.
January 20, 2010 at 1:25 pm
I check online bank statements and credit card statements daily. I keep a manual record, too, with space for cheque numbers. (I didn’t see that mentioned on the worksheet but I might have missed it.) That detail has been a life-saver on a few occasions; one where I had to cancel a lost cheque and the second, where I was billed twice … the first cheque had been cashed but the business had no record. I feel safer keeping a manual record: computer glitches occur, databases and accounts can be compromised…
January 20, 2010 at 1:32 pm
I learned about reconciling when I was very young, 12 or so. We had moved to a new house and someone had left an account ledger behind. I asked my mom what is was and she explained it to me. It still had blank pages in it so I decided to try it out with my allowance, birthday and babysitting money. This exercise is also when I learned what the word “depressing” meant as I could see how much and how quickly money was going out; an excellent lesson that has stuck since.
Now whenever I think of buying something, I think of how it would feel to see that purchase listed in my account book. If it makes my stomach sink, I don’t buy it. It all goes back to that afterschool brat I babysat whose mother never paid me on time. I really really earned that money and it hurt to see it go.
January 20, 2010 at 1:55 pm
Here’s another vote for 21st century technology instead of pen and paper. I check my credit card and online banking activity at least once a week to make sure it matches what’s entered in the Excel spreadsheet I use to track my account transactions.
January 20, 2010 at 2:24 pm
Reconciling these days for me is checking out my online banking, I get my statement from my bank online now as it saves the paper and its one less paper to file. Growing up my mother had me go through all the recipts and check them off as they are on her statements but now a days I think more and more people just use online banking and tools that they offer online to double check but its always a good brush up on the accounting skills how to do it the old way the right way
January 20, 2010 at 2:35 pm
Well, it looks like Catherine and Kathryn are of the same mind.
Although I pay all my bills online, and very seldom write a cheque any more, I still have my age old habit of keeping track in my account book. I check my bank balance usually daily. This is how I caught the $10. that was taken out of our account that I couldn’t figure out. Stop me if I’ve told you this before LOL – I went to the bank, withdrew cash. She said she gave me $10. too much and after the fact took it out of my account. Now, small town, where you know everyone – I trust her. However, I feel I should have been phoned and told of the error and that she was going to take the $10. out of our account, not me finding it myself.
Amelia, at least you got paid eventually. When I was twelve I took a little girl skating on Saturday and her Mom never had the $$ to pay me. She ran a Globe and Mail outlet so I knew it wasn’t true. It was 50 cents per Saturday. I’m confessing here that after the third Saturday with no pay I told her I couldn’t do it any more. I took 4 milk bottles from her stoop (worth about 40 cents) and marched to Mona’s candy store and bought 2 cent grab bags with it all. I’m going to hell!
January 20, 2010 at 3:16 pm
Before I started following the “Gail System” I used to keep track manually.
Now that I use mostly cash I don’t bother, I just go on line every couple of days. Most months I only use one cheque (post-dated to pay for my parking) and only use my debit card to take cash out of the bank every week for my version of Gail’s jar system. Everything else, like paying bills and monthly donations, are done electronically.
January 20, 2010 at 3:51 pm
Since I pay 99.9% of my bills online, I don’t have much need for reconciling my account. I only write a cheque to my dentist 2x/yr and my Esthetican a couple times a yr . For those who write cheques or share a bank account where everyone accesses it, then yes, highly recommend the process.
January 20, 2010 at 4:21 pm
No, I never do outside just glancing through the list in my online banking. It’s just just high on the list of my priorities.
I go to work, come back at 6, spend time with my son till 9pm (this includes cooking and feeding, bath and sleepy time), then go to the gym, come back at 10pm, sit down for the first time till around 11pm and watch something, then go to sleep.
January 20, 2010 at 4:32 pm
Ok I have to tell you a story.
One year, around 1999, I received a HUGE bonus. I went to the bank and decided to put it all in RRSP’s. The bonus was in my bank account. I sat down with the investor and talked and talked and talked about everything, including personal hobbies etc. She set up my account, and I left.
I noticed after a few days that I still had all the bonus in my account, and had my RRSP showing the entire amount in it! Double the money. I shrugged it off thinking my account was just not updated yet. Then I went away for a week, came back and noticed the money was still showing in both places. I thought, wow that’s odd, they’re really behind in taking out the money.
The next day I get a phone call from the investor, who , with a very shaky voice, asks me, how exactly did I pay for my RRSP?
I wanted to say “cash” , oh did I ever! but something higher than me stopped me..
enough money to go for a 2 month vacation is a sweet bonus but…… a clear conscience is forever
January 20, 2010 at 4:46 pm
I log on to online banking and ‘watch’ the transactions…almost daily. While I don’t use a cheque register, I do know how much every cheque has been written for (not many) – and within weeks of changing banks one was cleared through at the wrong amount. ($20 more than it should have been) Scary to imagine that can happen, scarier to imagine that there are people that may not even notice …
January 20, 2010 at 4:58 pm
We don’t reconcile, per se, but we do go over our bank and credit card records at the end of every month and track our spending. If we don’t recognize a charge, we will track it down and follow up. I think it’s so important to keep on top of what you’re spending, because if you don’t it’s far too easy to trick yourself into thinking you’re more financially responsible than you really are. When we first started the process of tallying up our monthly income and expenses it was eye-opening, for sure.
January 20, 2010 at 5:42 pm
I don’t reconcile our accounts. I know every penny we spend and keep all receipts and sheck bank and credit card statements closely – but I trust those institutions to do the math correctly – maybe a little too trusting – but I stress enough regarding money and don’t need to add worrying about the math (mind you my brain is good enough with math that if there is a large descrepancy I do spot it rather quickly). We pretty much spend the same amount each month and earn the same amount each month – so the balances at the beginning and end of the month are pretty much identical.
January 20, 2010 at 7:42 pm
I pay cash for day-to-day expenses, so I go to the ATM about every two weeks, and get the bank statements while I’m at it. At home I check everything with an Excel sheet, usually vs. expectations (all those regular payments), sometimes against receipts (irregular expenses). I find an error about once every two years. Biggest (and strangest) so far were about 900 Euros which mysteriously appeared in my account from nowhere while I was abroad and went just as mysteriously and without a trace two months later, leaving one cent behind that the bank refused to take back.
January 20, 2010 at 8:14 pm
A month or so ago I noticed that a mortgage payment had not gone out of our account automatically on the Monday morning as usual. I waited until late Tuesday and then called to see what was up. The service guy seemed surprised I was calling to see why they handn’t taken money from my account. I just wanted to make sure the problem was being taken care of and I wasn’t suddenly going to be in arrears on my mortgage payments. They were having computer problems and eventually took the payment on the Friday. If I hadn’t been tracking the expected items line by line and just looked at the balance I might have assumed that the mortgage payment had already gone out and mistakenly thought I had more mad money that I expected.
January 20, 2010 at 8:59 pm
It’s not that you shouldn’t trust the tellers at the bank…it’s just that they make mistakes too. I asked my husband to cash a few cheques a couple months ago before he went out with his friends. I checked online that he had did it and noticed that it was missing $200. I called the bank to figure out the problem. They had made a mistake and so did my husband by signing the deposit without even noticing. Errors are going to happen, but at least with technology we can usually track the mistake without too many hassles.
January 20, 2010 at 10:40 pm
I haven’t kept a check register since college. Thanks to online banking I check my accounts every day. I write one check every other month to the bug guy. I have once found two errror (a total of about $18) in a week which forced me to get a new ATM card. I always know exactly how much is in my accounts. Most of my spending is planned in advance so it is only the occassional shopping trips that forces me to do to much work.
January 22, 2010 at 6:28 pm
I keep a checkbook register updated, plus I verify it a couple times a week against my online banking transactions. Have never noticed an error in my USA bank account but have found a few errors in my BMO bank account. They seem to not be as careful!
January 22, 2010 at 9:18 pm
It’s funny – I keep a mileage log and calculate my gas mileage to save money, but I never reconcile my bank statement.
I do check online regularly though, and have found problems.
When I have found a mistake I’ve called the bank, and they’ve fixed it, but what about the mistakes I’ve missed. I’m going to follow Gail’s advice and start reconciling my accounts!
January 22, 2010 at 10:22 pm
I use accounting software (which works great except when one’s computer and the most recent backups gets destroyed by malware). I check my accounts online frequently but I also still track things in my cheque register. Everything else is charged on my credit card and I usually reconcile that every 2 weeks.
Part of all my jobs since I finished school have involved some form of bookkeeping so I hate being out with a passion and can’t imagine not reconciling bank accounts.
January 25, 2010 at 11:02 pm
Perhaps I am a bit obsessive but I reconcile my accounts daily. I use an excel spreadsheet to budget my bi-weekly expenses and then I cross-reference it with my online statement. It takes less than 5 minutes and allows me to plan my spending. By staying on top of this, I always have an accurate idea of how much money I have left to spend. I record the anticipated expense in one column and then verify each expense in another column as each item comes out of my account. It is very empowering and has really helped me take control of my spending.