Bank statements help you to balance your checkbook
Many people rank the value of a bank statement right up there with junk mail, not grasping the fact that a bank statement is a free, well-organized tool that’s specifically designed to help them to stay on top of their finances. One of the most important uses of a bank statement is to help you “balance your checkbook.” Balancing your checkbook is the process of comparing how much money the bank thinks you have in your account (according to the bank statement) with how much you think you have in your account (according to your check register) and reconciling any differences between the two in order to determine how much money you really have. Teaching you the details of how to balance your checkbook is beyond the scope of what I want to cover in this article. For now I just want to focus on emphasizing the value and usefulness of a bank statement.
What does a bank statement tell you?
Banks are astonishingly good at tracking the financial activity in your accounts, especially in light of the billions of transactions that they process each year. As a service to you, each month your bank will provide a compilation of all of your transactions in an organized way, and that summary document is your bank statement. And what does your bank statement tell you? It starts out by showing you exactly how much money you had in your account at the beginning of the month, and then it provides you with the following:
- Additional deposits you made to increase your account balance (paychecks, cash you deposited, etc.).
- Charges and withdrawals you made against your account (checks you wrote, debit card charges, ATM withdrawals, etc.).
- Interest income that you earned during the month.
- Fees charged to your account (account maintenance fees, ATM fees, etc.).
- Your account balance at the end of the month (after taking into account all of the above transactions).
A bank statement enables you to determine exactly where you stand financially
While bank statements may not seem terribly flashy, they are incredibly important. Why? Because knowing how much money you have is a vital, foundational element of effective money management. And I don’t mean just having a “good idea” of how much money you have, I mean knowing exactly how much money you have. And why is that so important? Because the sense of certainty that comes from knowing exactly where you stand financially is a key motivator that will better enable you to develop meaningful and realistic plans to better your situation. After all, you can’t effectively chart a course for where you want to go financially until you first figure out where you are right now, and grasping the importance of your bank statement and having an understanding of how it works is a key part of that.