I’ve been getting requests to talk about strategies to balancing your checkbook. Mostly because people are sick of paying fees out of their bank account. One incident can easily cost in the hundreds of dollars.

Here’s the run down:

Banks make money off of overdraft fees, but a lot of people don’t realize how much they make. First, they’ll sometimes post transactions in a way to force you to pay fees. They’ll post the bigger payments first (like rent) and then post the smaller ones next. That means if you have $500 in your checking account and four transactions pending, the smaller ones will create more fees for them.

For example, if you paid rent of $500 and then had three transactions of $15, $10, and $5 they will post the $500 to your account first. That sucks up your balance. The next three transactions all carry an overdraft fee. If they post the smaller ones first, all three small ones go through and only the rent gets an overdraft fee.

Pretty slick, eh? They do this because they know they’re going to outsmart you. Not anymore.

Here lies the importance of balancing a checkbook. If you are charged a $30 fee for overdrafting, you could easily end up with a few hundred dollars of fees on small transactions. Eliminating one incident can save you a lot of money (you’ll flip when the $1.50 fee for taking out of a competitors banks ATM costs you more money in fees then you ended up with). The first trick is to know when everything will post. This is called float-time. Take a calendar and write when all the fixed payments come out (rent, cell phone, etc). Then you’ll know exactly how much to have and when you need to have it by. Checking your account online a few days a month can make it easy to track this.

Then you have all your other expenses like going out, utilities, food and textbooks that aren’t the same from month to month. This is where your budget meets your check book. The best way to handle these is with cash. Say for example you want to spend $400 on each one of those bills. The trick is to take $100 out of an ATM every monday. This way, you’ll know exactly when the money is coming out for those bills, even if they aren’t the same every month. It will also help you budget.

If you take the money out on Monday and have no cash by Saturday, then sorry. No going out. But, if you get to the next Monday and still have $25 left over, good for you! Keep taking the $100 out every Monday and don’t stop. If you have extra then put it in a savings account if you’re not going to spend it. Note: If you take out of the ATM every Friday you’re more likely to blow it over the weekend, whereas with a Monday you’ll probably spend it more wisely knowing you’re going to want to go out.

For The Pyschology of Spending, click here.

Now you have all your expenses tracked perfectly. No need to worry about balancing your check book. You just have to know that rent is due on the 30th, cell phone on the 15th, and how much your checking account needs to have each month. It eliminates the annoyance of going through and doing math with your checking account and your receipts. Once you do this for a few months it will become a habit and you’ll never run into the hassle of an overdraft again!

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