Taking control of your finances is a powerful thing. It’s made of simple actions that add up in impact, such as reconciling your bank statements each month.
You may not be the type of person to use accounting software, but that’s fine. Checking your account balance regularly and doing a simple bank reconciliation can help you maximize your earnings each month and reduce your risk of any missed payments.
Here’s why you should reconcile your bank statements, plus how to get started.
What Is a Bank Reconciliation?
A bank reconciliation means that you compare your accounting records with the amounts shown on your bank statement. That usually means comparing the activity in your checking account to the statement you get at the end of the month. You’ll identify any differences between your bank balance and the ending balance on your statement.
Your goal? To make sure that all payments have been properly processed, all deposits were successful, and no errors occurred.
Why Is It Important to Reconcile a Bank Statement?
With the rise of online banking, many individuals no longer take the time to reconcile their bank statements. It’s still common practice for large and small business owners, however—and you might find it very helpful, too. For one thing, reconciling your statements helps you track your cash flow, service charges, outstanding checks, and more.
Here’s why you should reconcile your monthly bank statements. Yes, you can be your own bookkeeper!
Prevent an overdrawn balance.
When you look at your bank account balance online, it won’t always include what’s pending. Check the beginning balance, your known expenses, and make sure you know the true amount you have. You’ll want to factor in any recent withdrawals, uncleared checks, or deposits.
Taking this step can prevent an overdrawn account because you’ll know if you truly have sufficient funds. If this has been an issue for you in the past, you might look into an account with no overdraft fees.
Catch payments that were not received.
Did you recently pay a bill online or by check, only to receive a second bill? Looking at your bank statements shows you all of your bank transactions—including recent bill payments. Through the bank reconciliation process, you might catch an error, or you might be reassured that you did, indeed, pay that bill.
Avoid costly errors.
It’s possible that a transaction is recorded twice, recorded for the wrong amount, or not recorded at all. This can happen after you cancel a membership or subscription. Sometimes, a recurring fee will continue to show up on your statement. In other cases, there may be entry errors at storefronts, which manually enter your total charge.
By reviewing your financial statements closely, you can keep an eye on these mistakes.
Become more mindful of bank fees.
Do you know all the service fees you pay? Checking your bank statement balance will help you understand the exact fees associated with your accounts. You might be able to leverage this knowledge to negotiate for better rates from your bank.
Detect fraud and theft sooner.
Unfortunately, millions of people fall victim to fraud every year. Checking your statements will help you notice any fraudulent charges. Thieves will typically charge a small debit amount to test, so look for unidentified charges of a few dollars. Catching this early can prevent you from dealing with more significant losses in the future.
How to Reconcile a Bank Statement
Taking just 10-15 minutes each month can make a big difference. Once a month, reconcile your bank account by comparing your account statement with your actual transactions. With receipts, this process will be much quicker.
1. Confirm your biggest purchases.
If you have a lot of activity on your statement, start with your ten largest purchases to make sure there are no errors.
2. Ensure that all deposits are correct.
Next, you’ll want to verify that your checks or transfers were received as expected.
3. Make sure all outgoing payments are accurate.
From bill payments to this week’s grocery bill, make sure that the numbers on your statement are correct. If you have autopay set up on your bills, this is a good time to make sure those payments went through.
4. Document your totals.
Record your incoming and outgoing totals. This will be helpful when aiming to track your earnings and spending habits month-to-month.
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