How to Balance Your Checkbook

Whether or not you run a balanced budget, there’s nothing more important than keeping a balanced checkbook. Some of you might use computer software to do this, which is great, but we prefer the old-fashioned pen and ledger method. The key is to track every dollar that passes in and out of your life in your checkbook ledger, whether or not it went through your checking account.

If you do this correctly, at any given moment you should be able to instantly know your net worth. The upside here is that if your net worth teeters on zero or is perpetually in the negative, you can curb spending that would lead to further debt.

In these trying economic times, we thought now was a great time to share our fool-proof method for balancing the family budget with a checkbook ledger.

Always know your net worth, even if it's negative.

Always know your net worth, even if it

Step One: Write every expense in your checkbook ledger no matter how you paid for it.

In the first column of your checkbook ledger, indicate how you paid for an expense. If it was a check, write the check number. If it was your Visa card, write Visa. If you have three Visa cards, come up with nicknames for each one. We use the following notations:

123 – Check Number
ATM – For cash withdrawl/deposit
Visa – Credit Card 1
Elec – Electronic payments/deposits
Bank – In-person bank transactions

Step Two: Track the status of each expense/deposit with symbols.

Not every item in your checkbook needs to be a completed transaction. In fact, tracking upcoming transactions or those that are still unpaid is the most important part of keeping a balanced budget. Here’s why. Let’s say you have $1,000 in your checking account and you don’t get paid again for two weeks. If you have to pay $800 worth of bills to pay next week, writing that down ahead of time will prevent you from spending it this week on clothes or trips to Target.

Circle – A transaction that has not yet occurred. We use a circle for credit card purchases or upcoming transactions.
Circle with a dot next to it – A credit card transaction that hasn’t been paid off but shows up on your credit card statement. This helps you keep your credit card statement in check.
Circle with one line through it – When you pay off a credit card, but it hasn’t yet shown up in your checking account.
X – A completed transaction

Step Three: Your balance doesn’t have to be positive.

For those of you who live pay check to pay check, your balance will often fall into negative territory. That’s just a fact of life for many of us. This doesn’t mean that your next check is going to bounce or that you’ve overdrafted from your account. It means you’re carrying debt in your credit card account. Having a negative balance is a great motivator to not overspend.

Any questions?

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