When it comes to money, there is one very important tool we get every month, our bank statements. This provides a snapshot of how we spend our money each month and we can make a lot financial decisions by using this information. All it requires is a bit of manipulation of the numbers to get the information that is needed.
Reading Your Bank Statements
The first thing you need to do is be able to read your statement and understand what it is telling you. You will see starting and ending balances for each month as well as every transaction that goes through your account. There will be some explanation of what it is but they may not always be the most helpful or informative.
Deposits
This is any money that was put into your account - wages, cash and direct deposits from other sources. If you aren't sure how much money you actually have to spend when you get paid, the amount deposited into your bank account will tell you. If you make any interest on your account, it will show up a deposit.
Withdrawals
The opposite of deposits, these are any funds that come out of your account. This will be any bank machine withdrawals, use of a debit card, bill payments, checks written or fees for having the account or fees for overdraft.
How To Use Bank Statements
Once you have your bank statements, and know how to read them, you can manipulate the numbers in a variety of ways to help you make decisions. You will need a minimum of six months of transactions to really get a good picture of your financials but a year or more will definitely be beneficial.
Balance
Many people like to balance their account. What they do is review all the transactions that have gone through and make sure they match what you know went through. Many times, there will be a timing difference, especially if you have written a check. You may show it coming out one day but it won't actually come out of your bank for a month. You still need to consider it out of your bank account though, as it can come out anytime. If you find anything that doesn't make sense, you can contact your bank for further information.
Budget
For those who are running out of money on a regular basis, doing a budget is a good idea. To do this, review your deposits and withdrawals and figure out where your money is going. Make a chart showing where the money is coming in, where it is going out and what the difference is. If you are in a negative amount, you will need to increase you income or decrease your expenses. Review your spending to see where you can cut things out such as meals at restaurants or how much you spend on groceries. In making a budget, make sure that you add in 1/12 each month for an expense you only incur once a year.
