Saving is kind of a set it and forget it process, once you get your accounts setup and your transfers in place there isn’t much, if any, account management that needs to take place. A checking account, however, requires you to actively manage and track your funds. The most basic form of checking account management involves using the check register you were provided when you got your first box of checks.
How to Use a Check Register
Whenever you make a purchase with your debit card you should record the transaction in you checkbook register and subtract the amount from your current balance. In addition to, and probably more important than, debit card transactions are the checks you write. For every check you write you should enter the check number, the date, who the check was written to, and the amount. You should then subtract the check amount from your running balance in your register. You have to be certain you are maintaining all of your outstanding checks. Unlike a debit card transaction which is recorded with your bank online when you make the purchase, your checks are not recorded until they actually hit, and clear, your bank account. If you fail to keep up with the outstanding check you could be in a position where it appears you have funds available which have already been allocated to an outstanding check.
Alternative Check Registers
As the technology age continues to grow and take over more aspects of our lives, more and more people are moving away from paper check registers and towards complete financial management tools. These types of tools are in two categories, desktop applications, and online interfaces.
Desktop Management Applications
These applications require you to download or purchase them and install them directly on your computer. In most instances you are going to have to manually configure each of your accounts, and then add each of your transactions. The applications tend to work like a traditional checkbook register where you need to manually enter your deposits and withdrawals. An added benefit of using an application like this is the ability to assign categories to each transaction so you can summarize your spending and income based on individual categories. There is no need to worry about the safety or security of your accounts as you are responsible for being the middle man between your account and the application. Some popular financial management applications include Quicken, You Need a Budget (YNAB), and GNUCash. Of these three GNUCash is the only free one, if you are interested in learning more about it check out my GNUCash series.
Online Management Applications
Online Finance Management tools are those systems which attempt to take all aspects of your finances into consideration and aggregate the data into a single sign-on application giving you a dashboard view into your financial well being. These systems typically operate by storing your credentials for login to your accoutns and then periodically accessing your accounts and scraping/collecting the updates. Popular online aggregators include Budget Pulse, Mvelopes, Mint, and Yodlee. These accounts have the advantage of being able to keep constant track of your spending, income, and investments without you having to update anything manually. The trade off is that you are entrusting all of your most important login’s to some online company. The only exception to this is Budget Pulse which operates more like a desktop application which you maintain online.
Balancing Your Checkbook
Regardless of where you record your checking account transactions you should regularly balance your checkbook. It used to be that people would balance their checkbook monthly when they received their statement at the end of the month. The process is quite simple, you should go through your statement and compare it to the transactions you have recorded in your register. When you match your transactions you place a check mark in the cleared box on your register so you know the transaction has been completed. Hopefully you should be able to easily match up your debit transactions as the dates should be relatively the same. Check entries are usually identified by the check number so you can easily track those down as well.
The idea behind balancing your check book is to ensure no transactions have cleared your account that you failed to record, and to identify outstanding checks which have yet to be deposited by the recipient. The hope is to have the balances in both your checking register and bank account match. All discrepancies should be sorted out and resolved. With the advent of electronic banking people can now balance their checkbooks more regularly allowing you to be more accurate in your tracking of checking account balances.
This article is a part of my Back to the Basics series. I plan to cover remedial personal finance topics which aren’t as sexy, or typically covered, in the personal finance blogosphere. My hope is for people to get a better understanding of basic personal finance without boring you to death, hopefully you will be able to share these posts with family and friends to get them into personal finance and have a good foundation of knowledge.