Monday, I’ll deposit my first paycheck of 2008. One of my goals for 2008 is to track every dollar that I spend. I haven’t used my checking account for two weeks, allowing for all checks that were written in 2007 to clear. After I deposit my paycheck, I can begin to track my spending, and I’ll know exactly how much I spend in a fiscal year.
I am reminded of the frustration I felt when I first started using a budget. I would sit down, write out my budget, but then, if I wanted to see my actual current checking account balance, I would have to wait until checks written in the previous month cleared the bank. Sure, the check amounts were already written in my checkbook register, but I wanted the actual checking account balance, in my account, to match, exactly, the balance in my checkbook register.
Eventually, I settled on letting the checking account sit, dormant, for a couple of weeks. During that time, all outstanding checks could be cashed, and my account balance would align itself with my checkbook register. For this two week period, we live ‘cash only’ – using the envelope system for cash management. (Click here to see a video I created, with step-by-step instructions for using the envelope system.)
My gym fees are auto-drafted from my checking account, and the auto-draft was scheduled for the two-week window. Just to simplify things a bit, I went ahead and paid my gym fees, a few weeks early, to avoid the auto-draft for that month.
Once my checkbook register and the checking account balance were the same, I began to make every effort to move away from paper checks. I now use online bill-pay, debit cards, and auto-drafts to pay 99% of our bills. We still write about 5 checks per month – and I’m looking for a way to make that number “0″.
Even if I move to “0″ checks, there are times when my online bill-pay service will write a paper check in order to send a payment to a small company or individual. I have to wait until these checks clear before my checking account balance and checkbook register balance are equal. (There are some online bill-pay services that deduct check amounts when the check are written, but my online bill-pay service deducts the amounts when the checks are deposited/cashed.) These are the checks, the ones written by my online bill-pay service, that need to clear before I can begin my 2008 spending and tracking.
Do you “zero” out your budget each month? If so, were do you send the leftover money?
What’s the significance of having the ACTUAL balance in your account match your register if you’re keeping sufficient records?
If you’re unable to work form the amount in your register for less than a month (a monthly reconcile is always warranted) then I’d say you have more problems than just adhering to a budget or tracking your spending.
If you can’t keep records well enough to trust your math then you’ll never really know how well or poorly you’re doing within your budget.
Hey, I love your site, but I don’t understand the need to force the checking balance to match the register balance by allowing all checks to clear. Why not just subtract your uncleared checks from the balance, and use that? And why do you want to avoid paper checks in the future? Actually, I am pretty sure that almost all online payments are made via paper checks rather than electronic transfers, so I don’t think you can always have instant transfers.
I think my budget and tracking habits are much more lax compared to other people. I’ve automated all of my utility and regular payments and converted them all into automatic debit payments. I use credit cards for everything so I’m used to a phantom amount that is always in transition.
You probably should keep a higher amount in your checking than constantly worrying about whether you’ll have enough to pay for a check you wrote.
-Raymond
I still have two irregular bills that must be paid by check and they drive me NUTS! I’m so used to NOT having to wait, these always throw me a loop as I anxiously wait for them to clear. My solution, I think, is to sequester these bills in a Credit Union free checking acct that’s so inconvenient I never use it.
The two week cooling off/zeroing out process is a great idea, with the obvious side benefit of forcing a cash only lifestyle for that time period. Like it, and will emulate for 2 weeks in July and then annually starting next Jan.
Thanks!
If you pay 99% of your bills online, auto-draft or debit card, how can you still have 5 checks to write a month? That would be, 500 bills to pay!!
I know you probably meant 90% , but it struck me as funny.
I’ll be doing the same thing, tracking. Starting on the 15th. I usally track for 3 months and then I fall off the wagon. I have quicken and msmoney. I might just use quicken to track everything.
Just a few thoughts, in response to come of the comments..
I don’t HAVE to have the actual balance and the checkbook register balance be the same… but I like for them to be, from time to time, just so that I can see exactly where I stand…
As for the online bill-pay… There are certain payments that are deducted on the day that they are scheduled and certain other payments that are deducted a few days later…
Yes, I like to zero out my budget… and I sweep all extra money into a savings account “slush fund”…
As for worrying if I have enough money in my account to track any check I might write.. I NEVER write a check unless there’s enough in the account… and THAT is why I DO USE a checkbook regsiter…
@C.Ward — Yes, I have tons and tons of problems…
But, sticking to a budget is not one of them… and, I’m a different kinda dude… I like for things to even out… I never claimed that I liked doing things the way others do things… Heck, I live in 2008 w/ out using a credit card! So, I don’t expect others to ‘get on board and go my way’…
@Kiran…
Yeah, I used 99% colloquially instead of mathematically… my bad…
NCN
i dont understand? why dont you use some sort of bookkeeping software such as quickbooks, quicken, money, etc. to enter your receipts and have a full picture of your finances…?
bryan,
I DO…
My goal here was to help folks who were just starting out… or folks who wanted to start w/ a new budgeting plan, etc… If you want things to “even” out… simply stop using the account for a few days or weeks, you’ll know where you are, and you can move forward… but, as a person who likes things to be orderly, i do this from time to time, just to “clean things up a bit”… and, if you’ve never used a bookkeeping software, this might be a good way to ‘get started’ and know the exact amount…
NCN
What a great idea. I wish we could do the same, but we’re just not as disciplined yet… maybe next year
There’s no guarantee that 2 weeks will be long enough for all checks to process. I have had checks take over six weeks to be deposited, especially when I’ve written them to smaller nonprofit groups, like the PTO or the local Boy Scout chapter. I even have two checks from 2001 that have never been processed. I asked my bank about them, and technically they can no longer be deposited, but since both were written to large corporations, they probably would be processed electronically, in which case, the date written would not be taken into consideration.
I balance my checkbook every Monday morning. Because I do it regularly, it only takes about 5 minutes. I take my checkbook total, add in the outstanding checks, and compare to the online total. I use the checkmark box to mark off when transactions have finished processing. The only thing I have to be careful of is when a restaurant tab is pending, they don’t show the full amount with tip. I can tell what I’ve spent in a given month by just looking at the dates of the transactions.
Before I began doing this “old school” balancing, I used to have a horrible time figuring out what I had on hand for paying bills.
Excel really helps me in this endeavor. We have 5 columns for each pay period.
Check #, Due Date, AMOUNT, Paid
1st column frozen (stays there all the time) is categories for payments
The fourth column will show the AMOUNT really in the bank account once all payments have cleared and the fifth column ties into our bank balance.
I do the normal updating from our online account to the excel sheet rather than to the actual check register.
Rows would include Beg Balance, Deposits, Payments and the total would be beg balance + deposits – payments.
The total for the amounts would become the new beg balance and the total for Paid would become the new beg balnce for the paid.
At the end of each pay period the Amount and Paid columns equal and I move all the pending items to the next pay columns.
Takes some work but the flaws are when you write a paper check and do not record it in Excel. Then you would be adding it after it hits the online system.
8/25/2006
Description Check # Date Amount Paid
Beginning balance
Deposits
AAA Mid-Atlantic membership
Babysitting
Babysitting
Car — auto insurance