The bank statement came today, and you tossed it into the stack of unopened bank statements.
With the others. You have so many other pressing things to do. Growing your book of business, serving current clients, pouring into your employees, your family, and the community you serve. Yet investing time to balance this statement against your accounting platform and analyze the information it contains is essential for many reasons.
If you are trying to change your financial picture, it is essential to track your expenses each month. It is just as important to balance your checking account and credit cards to the bank statement each month. While it may be an extra step, it allows you to spot problems with your account and it can prevent you from overdrawing.
Whether you are tracking your accounts with pen and paper or using financial software, this is a step you shouldn’t neglect. Here are seven reasons you need to take the time to balance your checking account to your statement each month.
1 – Catch Mistakes You Made
You and your employees are human. That means human error. One of the biggest reasons you should balance your checking account to your statement is to catch any mistakes with your record keeping. Numbers get transposed. Thumbs get fat. It may seem obvious if you are keeping track manually, but even if you are using software, you may make mistakes in entering your deposits or transactions (or the software may make mistakes in auto-importing them).
These may be minor differences but transposing two numbers will throw your balance off. Balancing to your bank statement will help catch those and prevent you from accidentally overdrawing. Consider this. If you’re going somewhere and you’re off course by just one degree, after one foot, you’ll miss your target by 0.2 inches. Trivial, right? But what about as you get farther out?
- After 100 yards, you’ll be off by 5.2 feet. Not huge, but noticeable.
- After a mile, you’ll be off by 92.2 feet. One degree is starting to make a difference.
- After traveling from San Francisco to L.A., you’ll be off by 6 miles.
- If you were trying to get from San Francisco to Washington, D.C., you’d end up on the other side of Baltimore, 42.6 miles away.
- Traveling around the globe from Washington, DC, you’d miss by 435 miles and end up in Boston.
- In a rocket going to the moon, you’d be 4,169 miles off (nearly twice the diameter of the moon).
- Going to the sun, you’d miss by over 1.6 million miles (nearly twice the diameter of the sun).
- Traveling to the nearest star, you’d be off course by over 441 billion miles (120 times the distance from the earth to Pluto, or 4,745 times the distance from Earth to the sun).
Over time, a mere one-degree error in course makes a huge difference!
2 – Track Your Spending
When you balance your checking account, you can also track your expenses. It is very easy to do this with personal finance software that provides a running total. When you enter the transaction into your app, it will automatically track your spending so that you know when to stop. The software helps you plan for the annual expenses because you can look back over your spending for the year and see things you may have forgotten to include in your budget.
3 – Notice Mistakes Your Bank Has Made
Banks have been known to make mistakes. However, if you are not balancing to your account, you may not realize that a deposit is missing, or a withdrawal is unauthorized. There is a paper trail that the banks use, and you should be able to work with your bank to correct any errors—but only if you catch them.
4 – Catch Fraudulent Charges
Identify theft is becoming more and more common. Your debit card information may have been stolen. The thieves then use the card information to make purchases online. Sometimes these are large transactions, but sometimes they do several smaller transactions to try to sneak by unnoticed.
Banks and credit card companies have a period of time in which you can report fraudulent charges, usually between 30 and 90 days from the date of the statement. If you don’t balance your statement, you may not catch these until it’s too late. You might also notice things like a transaction that was accidentally run twice at a store.
5 – Be Aware of Where You Are Financially
If money is tight and you are living from paycheck to paycheck, then you need to carefully track your spending to make sure you do not accidentally overdraw your account. This can easily happen if you are married and you are both accessing your checking account. It is important to balance your account so that you know where you are and how much money you have left to spend until your next paycheck.
6 – Discover Missed Automatic Payments
You may have an automatic payment set up to pay club dues, medical bills, insurance, or other small monthly payments. These payments should go through without a hitch, but sometimes if the company has switched over to a new system or you get a new credit card number, the payments may not be processed. In some cases, it may not be a big deal, but if it ends up with your insurance being canceled or you get hit with late fees, it could cost you more than you expect. When you balance your statement each month, it allows you to catch these mistakes and contact the company before there are any consequences.
Stop Small Things From Becoming Big Things
When you balance your account, you may catch small fees or mistakes that do not seem like a lot on the surface. You may remember to record the ATM withdrawal, but not the additional fee that your bank charges for using a different bank’s ATM. These fees may be small, but if you do not account for them in your balance, you may end up overdrawing your account and incurring even more fees.
We are here to help.
Rektio Accounting knows that there is more to your business than your bottom line. Yes, we do provide services performed by credentialed accounting professionals. But we provide so much more. We come from a long line of business owners. We know what that means for you and your family.
If you are needing CFO services, but not a fulltime CFO, let us help. We are passionate about the story of every business we serve. Nothing galvanizes us more than knowing: Why you do what you do? What client has made the greatest impact on you? What keeps you up at night? and What are your dreams for the future of your business, your employees, your community, and your family?
We have a heart for the mindset of an entrepreneur. You inspire us with how you see the world. Yes, you need a CFO. You also need someone to talk to about your concerns, financial and otherwise. We will be that person for you. Feel free to contact us today. The only thing we care more about than your business is your peace of mind.
Mari Sandifer | Director of Marketing & Business Development
Mari joined Rektio as Director of Marketing and Business Development in 2020 after spending over 25 years in corporate finance and 3 years as a business owner. She holds a BS degree in Marketing and an MBA in Finance from Indiana University’s Kelley School of Business. Her CPA license is inactive (and morbidly obese).
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