When I talk to my younger siblings, and to my younger cousins, as well as to fellow personal finance bloggers in their 20s, I notice something interesting: Most of the people I know don’t reconcile their accounts each month.
My first checking account was a joint account I opened with my mother when I was 12. I grew up when a checking account meant checks and an accompanying ledger, and a paper statement. Every month, my mom made me sit down with that ledger and my statement, and balance my account. Even now, that habit is so ingrained in me that, even though I use personal finance software and I bank mostly remotely, I still reconcile my accounts each month.
And it’s probably a good thing that I do.
Is Managing Money More Difficult Today Than it was 30 Years Ago?
Recently, I received an interesting communication from Prism Money, a bill pay app. Prism’s CEO, Tyler Griffin, insists that the way we take care of our bills now lends itself to inefficient money management. It’s a big change from the way things were done 30 years ago (or even 20 years ago, when I was introduced to the world of banking). “Back then you would take a few hours out in the evening, write checks for the mortgage, electric bill, phone bill, cable bill and car loans, place them in envelopes and then balance the checkbook,” Griffin says in an email. “You knew how much money was in your account, when the next paycheck would come in, and how much money was left over.”
Contrast to now, he points out, when bills are paid by various means from check to bill pay to direct debit, and statements are delivered electronically — and often ignored.
Not only that, but even though we have all this great technological capability, many financial institutions still rely on outdated techniques to manage all of this. Clearing times through the ACH, and other expenses related to bill pay, can mean late payments and overdrafts. The result, says Griffin, is that consumers pay $32 billion in overdraft fees and $22 billion in credit card penalties each year.
“So while making payments is simpler than before, reconciling total monthly expenses is much more difficult, causing Americans to pay more penalties and fees than ever before,” Griffin insists. “No wonder two-thirds of U.S. households live paycheck to paycheck.”
Do You Know Where Your Money Is?
This is a big reason that I still reconcile my account, and why I am a big fan of using mostly-manual entry methods for my financial transactions. Yes, I have a lot of automated transactions in my finances. However, I don’t link my personal finance software to my banks. I schedule my automatic transactions in my software, and I enter every day transactions, such as gas and groceries, manually.
This way, I am very aware of what is happening with my money. I know where it is going, and I can also approximate when it will get there. While I do get frustrated with how long it can take for bill payments to make it through the antiquated ACH system, the fact that I remain relatively in touch with my finances means that I have time to adjust, and to accommodate what is happening.
Reconciling my accounts each month is also a big part of this equation. I make it a point to look at my electronic statements, and compare them with my own recorded transactions. I can see if I’ve missed something, or identify fraudulent charges. The act of sitting down and really looking at what the bank or credit card says is happening, and comparing it to my own records, further keeps me in contact with my money, and how I use it.
Yes, there are lots of great ways to manage your money online and with technology. But I think that you lose something when you don’t reconcile your accounts. Sometimes, what you really need, is to slow down and look things over. It can be good for your finances, and save you in bank fees.