How to Manage A Checking Account

Keeping accurate records is the surest way to properly handle your checking account. Learn how to improve your account management.
By Andrew Freiburghouse

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While balancing a paper checkbook may seem like a thing of the past, the principles behind this practice are as valid as ever. In addition to preventing overdraft fees and catching erroneous charges, properly reconciling your checkbook can also allow you to take a better look at your financial habits.

Taking Charge of Your Records

The key to managing a checking account is keeping an accurate record of your deposits and withdrawals. When you get in the habit of writing down every amount that comes in or out of your checking account, the process can start to feel routine — possibly even satisfying. Recording every transaction that occurs (or verifying it online) and calculating your balance regularly is by far the most reliable way of managing your checking account.

Still, some may struggle to record every purchase on a piece of paper. If you are one of those people who has given up on that level of organization, develop your own system for tracking your account. This will require keeping careful tabs on your approximate balance and making sure not to exceed it. Because you’re not being as precise here, it may be helpful to mentally round up the amounts on your purchases to prevent overdrafts.

If you choose this method, you may also want to keep a cushion in your checking account. Maintaining $50 as an off-limits reserve can save you a lot more than that in the long run. Today overdraft fees are routinely $30 or more per incident.

Checking Account Management Tools

There are a lot of tools available for managing a checking account that didn’t exist a few years ago. Online banking can give you instant access to your balance and spending records. It can also allow you to set up regular payments for recurring bills, withdrawing directly from your checking account on a predetermined schedule. Some online banking systems may even produce detailed reports on where you are spending your money, which can help you make adjustments to improve your spending habits.

But while technology can help you manage your checking account, it can also help you mismanage it if you’re not careful. As useful as computers are, they still require careful input from you. There is still no substitute for diligence and accuracy when it comes to financial record-keeping.

Building Discipline

Learning how to manage a checking account may also help you in other financial areas. If you can accurately keep records on your checking account, you may find it easier to accurately keep records for your business. If you can harness the discipline to maintain a cushion in your checking account, you may also find the discipline necessary to save for a comfortable retirement.

While it’s not easy or necessarily fun, successfully managing your checking account is crucial to your overall financial picture. Also, if your current checking account charges you a monthly fee or lacks the features you desire, it may also be wise to examine the options in MoneyRates.com’s checking account listings. Combining a competitive account with strong money-management skills can yield a best-of-both-worlds scenario for your finances.

Frequently Asked Questions

Q: Should I still keep a manual record of the checks I write even if I get my checking account statements online?

A: An online checking account can be a convenience, but the online record is not the new checkbook. You should keep a separate set of records for your checking account–whether it is a traditional checkbook or an app on an electronic device–and compare your record against the bank’s record regularly. Here are four reasons why:

  1. To watch for new fees. Bank fee structures are changing all the time. Notices of new fees can be easy to miss, but they will stand out clearly when you balance your account.
  2. Because banks make mistakes. Banks are pretty efficient, but not perfect. Transactions get posted to the wrong account, erroneous fees get charged–all kinds of isolated mistakes occur. Think of comparing the bank’s record to yours as a form of quality control for your checking account.
  3. To make sure your deposits have cleared. Many overdrafts occur because the customer thinks a deposit has been recorded when it has not. Whether a check has bounced or clearance has been delayed, you need to know.
  4. To guard against identity theft. The Federal Trade Commission estimates that as many as 10 million Americans are victimized by some form of identity theft each year. Balancing your checkbook is a good way to spot unauthorized transactions in your checking account.

If anything, an online checking account should be a way of keeping your records more up-to-date, instead of an excuse for not updating them at all.

Q: How much of a cushion do I need in my checking account?

A: Having a cushion is a good idea, because it can help you avoid overdraft fees or bouncing checks. However, keeping too big a cushion means too much of your money sitting idly, when it could be earning interest or helping pay your expenses.

To find the right balance, consider the following factors:

  • The size of your monthly fees. More and more checking accounts these days are charging monthly maintenance fees, and you may also routinely incur things like ATM fees. The more you pay in fees every month, the more of a cushion you need to maintain in your accounts to leave room for these fees.
  • The accuracy of your record-keeping. Do you record every transaction immediately, and update your record of the balance? Do you check your balance online before writing new checks or using your debit card? If you stay on top of things, you can afford to keep a smaller cushion. If you tend to be lax in your record-keeping, you’d better leave a bigger margin for error.
  • The minimum required to avoid monthly fees. The bank may effectively decide on the right cushion for you by requiring a certain minimum balance to avoid maintenance fees. Give the size of those fees, this is well worth doing if at all possible.

Finally, remember that it’s not just the size of the cushion, but also the timing of the cushion that matters. If you can leave a little time between when a deposit is made and when you start writing checks on that deposit, you’ll protect yourself against overdrafts caused by delays in posting a deposit.

About Author
Andrew Freiburghouse
Andrew Freiburghouse joins MoneyRates.com as a contributor specializing in tax and personal finance topics. Over the course of seven years, Andrew Freiburghouse prepared approximately 7,000 tax returns as a junior partner at Los Angeles tax preparation firm Pronto Income Tax of California, Inc. He also represented numerous clients before the Internal Revenue Service, in one case helping to reduce a taxpayer’s IRS debt from $72,000 to $700. Andrew lives in Brooklyn, NY, and is in the process of starting up his own tax practice