How To Avoid Bounced Checks

My wife and I were watching some old episodes of ‘Everybody Loves Raymond’ on Netflix streaming and came across the episode titled “The Checkbook”. In this episode, Ray takes over responsibility of the family checkbook from Debra after he says how easy it should be to handle the books. Unfortunately for Ray, he doesn’t know the first thing about handling a checking account. Checks get bounced, the electric gets shut off, and he comes across as a big dummy.

I know the show is meant to be a comedy, and I certainly got a good laugh out of watching that episode. However, I am constantly amazed at just how many people are in the exact same position as Ray was in that television episode. At one point, he’s talking with a friend and is just clueless as to how this big financial mess happened. He tells his friend that he makes decent money; paying the bills shouldn’t be difficult. His problem was that he didn’t keep track of where the money was going.

Now, I’m an accountant. I work at a bank. My financial accounts are always balanced. I always know when money goes out, who it goes to, and what it is for. There’s a part of me that simply can’t understand how or why anyone wouldn’t do the same thing with their accounts. But I know so many people, even other accounting-type people, who handle their accounts very similar to Ray. They have no idea how much money they have in their account when they write a check to the electric company; they just hope and pray that it clears. And if it doesn’t, then they get mad at the bank for hitting them with an overdraft fee.

The thing is, it’s actually pretty easy to get a handle on your checking account. Gone are the days when you actually had to keep a paper “checkbook” and manually write down everything that went through your account. With online banking and financial tools such as Mint.com, it’s never been easier to keep track of where your money is going. Still, the number one method of avoiding bounced checks and an overdrawn checking account is to keep in mind things that haven’t actually posted to your account yet.

For example, let’s say you log in to your bank’s website and check your account balance. It shows that you have $1,000 in the account. It also shows some of the recent activity in your account. You got paid yesterday, and you see that $1,200 was posted to your account. You also see that the check for the heating bill you wrote last week for $100 posted to your account. Now, how much money do you have to spend? The obvious answer for most people is $1,000 since that’s the current balance in the account. However, the correct answer is “it depends”. It depends on whether or not you have any transactions that have not yet posted to your account. Maybe you just mailed a check yesterday for your cell phone bill for $100. Or maybe you just scheduled your credit card payment online this morning for $200. Neither of these transactions have actually pulled any money from your checking account, but you need to keep them in mind when determining how much of that $1,000 you can actually use.

Every now and then I hear people talk and complain about getting hit with an overdraft fee from their bank (which typically averages around $35). The problem isn’t the bank; it’s that the person doesn’t know what’s going on with their money. If you keep track of what’s going in and what’s coming out of your account, you can go years without ever having an overdraft. I’ve had two in almost 11 years, with both of them caused by a bone-headed timing mistake on my part. And when you have them that infrequently the bank will most likely waive the fee (mine did).

The Bottom Line

While it certainly makes for a good TV sitcom episode, the reality is that there are a lot of people just like Ray. Sure, paying the bills and keeping track of the bank account sounds simple enough. But make sure you keep track of everything. You can avoid a lot of fees, stress, and embarassment. Not to mention, you won’t have to worry about the lights being shut off by the electric company during dinner.