"May I suggest, Mr. Lewis, that you bank with us?” That was Mr. Bank Manager’s penultimate sentence before launching into the arrangements for Mr. Lewis to repay his bank overdraft. Thirty years ago the nature of Mr. Bank Manager was a lot friendlier and more tolerant than today. Mr. Lewis acknowledges that what passed for mild admonition, truly served to make him a better financial manager. And he would endure that type of telling off any day than to incur the abundance of fees that banks charge today.

There’s no denying that spending money, even if it isn’t your own, is something we all relish. However, the proverbial open checkbook leads to self-indulgence and excesses. Freedom to blindly consume and spend without understanding the consequences will leave you broke. The idea of taking power of your finances is not a radical one. The danger of not monitoring your bank account is an ideological strategy that borders on irresponsible.

A relatively simple tool to implement is the ‘bank reconciliation’ process. Each month after you receive your bank statement, you should match all the transactions on your bank statement to your checkbook. After you match all the transactions possible you may be left with unmatched amounts. In this case prepare two lists: List “A” will show all unmatched amounts in your checkbook up to the end date of your bank statement. List “B” will show all unmatched amounts on your bank statement. Be careful that you identify each unmatched amount as increase in cash (deposit) or decrease in cash (withdrawal). The net for each list will be the result of total deposits less total withdrawals.

If you do your math correctly you will find that:

All unmatched amounts should be investigated. It is possible that an amount in your checkbook could be more or less than the amount on your bank statement. If this should happen then you must correct your checkbook. An unmatched amount on your bank statement could be an error made by the bank. It could be a deposit or a withdrawal of which you had no prior knowledge. You must contact your bank and prompt an investigation. Even bank fees that you do not agree with should be reclaimed from your bank. While amounts are under investigation, record each amount separately in your checkbook as deposit or withdrawal with a description “bank error until further notice”.

If it turns out that the bank did make an error you must fix your checkbook accordingly.

Paper checks are disappearing fast from the financial process. Progress has technological advantages such as online banking and direct transfers in and out of your bank account. Technological advantage does not mean efficiency, especially if your payment goes astray. Upon finding out that your payment is lost you must contact your bank. A stop order request will serve to put the funds back into your account. Don’t forget to monitor your statement for the funds you expect to receive, write “stop payment due from bank” next to the amount in your checkbook and look for the amount to show as a deposit on your next bank statement.

This entry was posted on Friday, June 15th, 2007 at 12:29 pm and is filed under lifestyle. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.