If you don’t know how to reconcile a bank statement you’re not alone. Many people (at all levels of financial sophistication and capacity) don’t have a clue when it comes to reconciling their bank account.)
Even though I knew how to do it, I used to ignore reconciling my accounts because I was “too busy”. Years ago my wife and I decided to have one joint checking account. So we just kept enough money in the checking account to make sure we didn’t get overdrawn and that was the end of it. This was many years ago and it was short-sighted.
If you take a few minutes now to learn how to do it and then become willing to practice – and even make mistakes – you’ll soon find out:
- It isn’t hard to reconcile your bank accounts
- When you do this monthly you gain insights into your financial behaviors that are simply unavailable any other way
- It’s an empowering experience that translates into having more control over other facets of your financial life.
With so much to gain from such a straight-forward task, let me make a promise to you. If you are willing to commit to this process (and learn as you go) I’m willing to go along with you for the ride. If you have questions about reconciling your accounts, just shoot me an email and I’ll either answer you straight away or write another post to address your concerns. Fair enough?
First things first.
Understand what we are doing and why. When you reconcile your bank statement you are taking the numbers the bank provides every month and comparing them to the totals you have in your check register. (Your check register is what you have at the back of your check book where you write down all the checks you wrote and the deposits you made during the month.) Simplisimo.
Why reconcile your bank statement?
Let’s get together on what your reconciled balance means. Then you’ll clearly see why it’s important to reconcile your bank statement with your register. Your month-end bank balance is a derived from:
- Your previous balance at the end of last month.
- Plus all deposits you made into the account during the month and any interest your bank paid you.
- Less all withdrawals by auto debit, the checks you wrote or cash you withdrew.
When you reconcile your statement with the register, you are making sure that you have recorded all the deposits and withdrawals. You are also making sure that the bank didn’t make a mistake and that you didn’t pay someone the wrong amount or pay them twice. You’ll also know if someone hasn’t cashed a check you sent. This is to say nothing of having your finger on the pulse of how much you spend. That’s a lot of important information. Wouldn’t you agree?
While we are on the subject of banking, check out Perkstreet. This is a great online bank that is extremely inexpensive and easy to use. They also have great resources to help you reconcile your account and get on top of all your finances.
When you reconcile your account, you will uncover any mistakes and that could be crucial in helping you run a tighter financial ship. Believe it or not, I’ve seen more than one client get out of debt and start building wealth because she started reconciling her accounts. No lie.
Take a look at a simple example.
Let’s say you start the month with a balance of $100. Your bank statement indicates that you deposited a total of $500 into the account during the month, withdrew and or wrote checks for a total of $350 and have a month-end balance of $250.
But when you do your reconciliation, you find that your register shows a balance of $350. Why the $100 discrepancy?
Let’s assume that you are sure that you balanced your account last month and that your starting balance in the register matches with the bank statement. Therefore, you know that either:
- You spent more than you recorded.
- You deposited less than you recorded.
- Someone is dipping his /her hand into the cookie jar.
- The bank withdrew too much in error.
- The bank didn’t record a deposit you made.
Regardless of why your numbers don’t match, you can see that it’s important to uncover any of these problems that may exist. This is why it is absolutely critical to reconcile your bank statement every month.
With such crucial information to be had, nobody has an excuse to overlook reconciling their bank accounts each month. Let’s get to work.
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