How to Track Your Beans
 

Do you know how much is in your bank account at this very moment? You can if your accounts are balanced. The idea is very simple. Each month your bank totals the debits (amounts subtracted from your account) and the credits (amounts added to your account) and sends you a statement. Debits are subtracted from and credits are added to your beginning balance and provide you with the ending balance. That ending balance becomes the next month’s beginning balance, and the process is repeated.

Here’s how to find your current balance. Get your bank statement from last month. Note the beginning balance. Then add and subtract your transactions since then, as shown in the example ledger below. Add all your debits, and then add all your credits. The total debits and total credits should match the bank statement totals. If one or both does not match what the statement says, you have an error. This is helpful to know because it allows you to narrow down where to look for the discrepancy. Once that’s straightened, subtract the debits from the balance, and then add the credits.

That gives you your current balance. Often you will forget some of the transactions that have taken place. That's why it's important to have it straight in the first place. Just like with usernames and passwords, it’s hard to remember everything, and even then it would still be easier to write it all down in an organized fashion.

Another way to do this is to go to your bank (in person or online, if you have such access) and find out what your current balance is. Ask for the last five or ten transactions and you will be able to determine two things. One is which checks you have written have already gone through and which have not. The other is whether or not you (and the bank) have kept track correctly.

The next step is to set up a ledger for each account. Use one for checking, and another for savings. I just use a spreadsheet. Each ledger should look like the example in Figure 2.

Figure 2

The "Date", "To/From - Reason", and "Balance" columns are self-explanatory. The “Debit” and “Credit” columns represent amounts being withdrawn and deposited from your account respectively. "Method" means how the transaction was conducted. If you wrote a check, the check number goes there. If you used an ATM card, then "ATM" goes there. The others are abbreviated DEP (deposit), WTD (withdrawal), and E (electronic transfer). Fee is used to note ATM charges or bank service charges.

Example Problem: You start the month with $1,382. You pay rent of $920, car payment of $275, get paid $1,000 twice, pay a credit card bill of $122, and withdraw $40 at an ATM with a $2 ATM fee. What’s your final balance? Answer: $2,023

The "X" denotes when a transaction has been reconciled (explained below). For now it is sufficient that you have the exact balance and whether each transaction has or has not gone through yet.

In your ledger, record your balance and all transactions, even the ones that have not gone through yet. You will arrive at your true balance (i.e. how much money you really have). Your goal should be to always be up-to-date on your balance, and for your true balance to always be greater than zero. Each time you conduct a transaction, record it soon after. Don't wait and let them pile up. That's what the bank does for you each month. Stay abreast of your financial situation.

Place your receipts, carbon check copies, ATM receipts and deposit statements in an envelope. Use a separate envelope for each bank account and each credit card account.

When you get your monthly statement, check it. See that it matches your records. This means you make sure the beginning balance for that period in your ledger matches the statement, and that the total amounts debited and credited to the account match. When this happens you end up with an ending balance in your ledger that matches the one on your statement.

Take all the paperwork from your envelopes and find the transaction receipts that are shown on the monthly statement. These are the transactions that have cleared during the statement’s time period. Put them together with the statement. File it all away in the folder system you set up in the previous section.

In the "X" column of your ledger, mark "X" by each transaction you have verified as having cleared and shown on your monthly statement. This is reconciling. After a month, sometimes two, if a transaction has not been reconciled you need to find out why by contacting the financial institution involved, the payee, or the payer.

If your ledger and your statement don’t match, and you keep accurate records, most likely you have transactions on your ledger which have not cleared. Thus they are not on the statement you received. The way to check this is to take your ledger balance and subtract or add transactions which have not cleared to cancel them out. Once you have done so does the ledger balance match the statement balance?

If it does then you’re all balanced. If not you may need to do some more digging or call your bank or credit union. It can be tedious to set this up if you have not paid much attention before. But once it’s done, provided you don’t have a huge amount of monthly transactions, it’s extremely simple to follow this system.

Set up one ledger for each of your checking and savings accounts. Then set one up for your each of your credit cards. For credit cards, record your purchases under “Debits” and your payments under “Credits”. If you’re carrying a balance, remember to add the amounts for interest, finance charges, and fees each month under the “Debits” column. The fewer accounts and the fewer transactions you conduct each month, the easier everything becomes.

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