Would you drive your car by looking only out the rear-view mirror? Didn't think so.
It always amazes me when I read accounts online about how some poor slug had his debit or credit card compromised and didn't figure it out for weeks or even months. That was the way I was, when I was 20-something. I never balanced my accounts, except at the end of the month when the "statement" came, and often I could never get the numbers to match up. Usually, after an hour of frustration, I would just give up and do a "balance adjust" to make things zero out.
Funny thing, too, my finances were pretty simple back then - not a lot of checks being written or debits made. And it was about that time they had "pay by phone" service where you could call a 1-800 number and get your current balance and the status of all checks cleared. So, even without the Internet, I had no excuse not to know what my current balance and available balances were, on a daily basis. And there is a difference between the two.
If you have $1000 in your checking account and then write a check for $200, your available balance is $800. Sure, you can call the bank or go online and they will tell you your current balance is still $1000, but that doesn't mean you have $1000 to spend. The bank has no idea you wrote a check for $200 until it is presented, which back in the old days, could take as long as a week. It is beholden upon you to figure out what your available balance is and not write checks or make debits exceeding that amount.
Think of it this way. The bank, when it sends out a monthly statement, or even gives you your current balance on the phone or online, is only giving you an historical record of what debits you have made. They are not - and cannot - tell you what debits you have made that have yet to be presented. The bank is giving you a rear-view mirror view of your finances. What you need to know is what you can see looking out the windshield of your car, not the back window. You need to know where you are going, not where you have been.
I got into trouble and bounced checks because I was looking out the back window, not the front. I would write a check and "forget" to write down the amount in the register, and thus have no idea what debits I made. As a result, my available balance was much lower than my current balance and I wrote more checks based on the current balance and all hell broke loose.
Today, we have the Internet and it makes things a lot easier. You can go online with your computer, tablet, or phone, and check your current balance and see what debits have been presented and then reconcile these with your own records. It gives you an opportunity to look for mistakes or mistaken charges. I do this every day, sometimes more than once a day.
When we go shopping, I go on to Quickbooks (the program, not the monthly service) and enter all the charges we made on our credit card as well as any debits. This way, I know where my financial vehicle is going - what my available balance is and how much money I actually have in my "checking" account (where I rarely write physical checks anymore - like most folks these days) so I can put more money into it before the current balance reaches zero.
As a result, I haven't paid a "bounced check" fee in over two decades, whereas some folks pay them every month - and claim it is the inevitable result of being poor. It isn't - it is the inevitable result of not keeping track of your money, and the less you have of it, the easier it is to keep track of.
Note that I said I also log credit card charges daily and reconcile my credit card account as well. One might argue this isn't as important, as you can "play the float" with a credit card and if you don't pay your bill or enter your charges for a few days, what's the big deal? And I guess there is some merit to that argument, but I find that the longer I wait to enter charges and reconcile accounts, the harder it gets. When you are reconciling accounts daily, maybe you have one or two charges to enter and reconcile. If you wait a week - or worse yet, a month - you end up with dozens of entries to enter and reconcile and if you are off by a penny, it can take an hour to figure out where you made the typo. This was the bugaboo that flummoxed me when I was a 20-something trying to reconcile a checking account once a month on paper.
I also try to pay off the balance daily - or at least make a partial payment daily, so I am nibbling away at the balance and pay it off before the end of the month. Here's a hint: If you don't pay off the entire balance, use an odd number every time - Pay $101 one day and maybe $102 another day. If you make a series of identical $100 payments it is hard to keep track of which have cleared and which are outstanding - the bank's date of payment will be different from yours, particularly if you make a payment on the weekend.
One reason people get into intractable credit card debt is they don't check their balance daily and at the end of the month they "suddenly" realize they owe the credit card company thousands of dollars and don't have the money to pay it, in their checking account. If you enter your charges daily, reconcile accounts daily, and make a payment daily, you realize where your money is going. And maybe - just maybe - you may see yourself headed off a financial cliff, so when your buddies suggest going for a "night out" you might instead demur and wait until payday, rather then throw more gasoline on the credit card fire. Like I said, "might" - it still takes willpower. But at least if you know your balance, you might be less likely to buy a round of drinks for the fellas and put it all on a credit card. And yea, I used to do idiotic things like that, when I was 24 years old.
Balancing accounts daily also gives me the opportunity to think about what I spent money on, how much things cost, and to reflect on our spending. Many people are complaining about inflation right now, but doing little more than complaining about it. They don't balance their books, so they don't realize they are dipping into savings more and more and letting their credit card debt creep up (both things that the banks say are going on right now, with the average American). "Suddenly" they will realize (in about 2-3 months, if not sooner) that their bank account is empty and their credit card bill is unpaid, when they should have seen this coming and tightened their belts long ago.
Gas is $4.50 or so where I live, yet I don't see anyone bothering to slow down and save on fuel. I don't see folks carpooling or maybe giving up their monster trucks. They just bitch a lot, but don't change their behaviors. This too, shall change, quite shortly. Remember in late 2008 when gas shot up to $5 a gallon, the housing market imploded, and the stock market tanked? Same shit, different decade. Wait for it.
People who keep track of finances see the canary in the mine keeling over dead, as their daily spending creeps up and the balance on their savings account goes down. I noted before our goal is to live on $100 a day or $35,600 a year. I can see that this is creeping up to $110 a day, which doesn't sound like much, but over time, it could create problems for our retirement plans. For someone living on a fixed income, it could be catastrophic.
Whatever your budget is - $100 a day or $1000 a day - logging expenses and reconciling accounts daily, can help you stick to that budget. Flying blind, on the other hand, only allows you to figure out, at the end of the year, whether you hit your target through dumb luck.
It takes a little time, of course, to enter these charges and reconcile accounts, but spending money should be a pain-in-the-ass and something that is reflected upon. Retailers would prefer, of course, that you whip out that credit card and spend willy-nilly, as you don't think so hard about spending when it is on "plastic". Spending cash always makes things seem more expensive, as you reluctantly pull those Jeffersons out of your wallet - or worse yet, Benjamins. Logging all your purchases gives you a chance to cut the free-spending loop and realize what it is you are spending money on.
And in that regard, logging all your purchases has another advantage. Most financial programs allow you to categorize purchases, so you can figure out how much you are spending on car expenses, home maintenance, utilities, food, liquor, restaurant meals and so on and so forth. Yes, sites like "Mint" or even your own bank might provide you with cutesy pie charts showing what percentage of your spending is in different categories, based on the nature of the business you are spending money at. But it is not precise, as they will log your purchase of beer at the gas station as "automobile expense" for example. And they are keen not to show dollar amounts, lest you get scared and stop using the credit card! So they show these useless pie charts, with "other" usually accounting for 50% of your spending every month. Less than useful.
Run your life like a business. When I started my law practice - and later on, our real estate investment corp, I had to log and keep track of all expenses and income for tax purposes and also to know whether the business was making money. I kind of sucked at this at first and had to take a course at a community college on how to use Quickbooks - and basic accounting. Once I did, well, I could see where my business was going, not just where it had been. I realized I had a lot of "Accounts Receivable" that were unpaid and a lot of unnecessary expenses.
It took me longer to realize that I needed to keep track of my personal financial life in the same way. Years after I saw the light and started figuring out my business accounts, I finally had an epiphany and realized that I could not understand my personal finances without creating my own independent financial records of them. Like so many people, I paid the "bills" every month and if there was money left over, I figured I was doing well. I didn't realize that leftover money was spoken for with outstanding or future debts and expenses.
For example, property taxes (which are not part of my mortgage payment as I have no mortgage payment) are due annually or bi-annually for some Counties. Insurance bills - for home, car, life, or whatever, are also annual expenses. For many people - including myself - these came as a "surprise" every year, which is stupid if you think about it, as it is a recurring expense. With Quickbooks, I can have these expenses automatically entered a month ahead of time, and thus be aware that even if my current balance looks healthy, the available balance may be far less, as I have this significant bill to pay in 30 days (yes, these bills change over time, but it is a simple matter to edit the amount when paying it).
"But all that takes time!" you say. Less time than you think. I can log onto our Bank of America accounts and reconcile our checking, savings, and credit card accounts in the time it takes for Mr. See to make breakfast - often far less. Once you are used to using the websites and programs, it can take as little as ten minutes - if you do it daily. Wait until the end of the month and it can take hours.
The choice is yours, which is the great thing about America - we all have choices, even when we think we don't have any. I see these whiny postings online about how people can't afford a $500,000 home and it isn't because they buy a Starbucks every day or eat Avocado toast. "I've paid $100,000 to my landlord over a decade, and yet I can't get a mortgage to buy my own home!" some cry. The problem is, of course, they have no down payment and their credit rating is shot because they let bills go unpaid or run up credit card debt - one Starbucks at a time.
That always puzzles me, because the same folks whining about their "right" to 1000-calorie candy-flavored ice-cream coffee drinks are the first to complain what a shitty place Starbucks is and how poorly they treat their workers. Stop going. That's one way to fix your waistline and your bank account at the same time. It is like people who complain about social media - on their Facebook account, or in a Tweet. You can't have it both ways.
And yes, $5 a day at Starbucks is $1825 a year in savings, or $557,996.97 if invested over 45 years at 7%. And yet, I see retail workers go out to lunch every day and spend $10 or more, in addition to their twice-a-day Starbucks habit. Yea, it does add up. You can make avocado toast at home for cheap!
It is akin to the 25-year-old who puts $500 in his IRA and them is mystified why he isn't a millionaire the next day. And yea, that 25-year-old was also me.
But a lot of people don't want to hear that. They want to externalize their problems and posit themselves as helpless victims of a cruel world. "If only" dramatic social and political changes took place, their lives would be perfect! Until then, why bother trying? It's called depression, and it's pretty ugly. Just let go of the steering wheel of life and let your car go off a cliff - after all, you did everything you could, right?
And I say this not in an accusatory manner, but because I went through this process myself as a 20-something. I felt the system was unfair and stacked against me. Just because I bounced a few checks was no reason for the mean old bank to charge me fees! Wah! Wah! Wah! I was a big crybaby. It took a few years - about a decade in fact - to realize that complaining about the unfairness of everything was a loser's game. At the end of that decade, I was a millionaire.
Others never see the light - including most of my family members. They bitch, they moan, they blame the system or the President (a popular sport on the left and the right) and everyone but themselves. They can't be bothered to balance their checkbook, and when they bounce a check it has to be the fault of the bank being "mean."'
They have hours every day to play Farmville or Candy Crush on Facebook, (or Minecraft online) but not ten minutes to log onto their banking site. I tell you what, checking my bank balance is a helluva lot more fun "game" than Farmville! What is odd, is that people will actually pay money to play some of these games, to acquire "gear" or advance to the next "level" - they can tell you stats on their favorite game, but have no idea when the rent or mortgage payment is due, or what the closing date on their credit card is, or what the interest rate is. They are keeping their eye on the ball, just the wrong ball.
And my sympathy for folks who can't be bothered to deal with their own lives, evaporates more and more every day....
