Checkbooks
A checkbook is used to manage money that you keep in a checking account. A checking account is a bank account that allows you to make deposits and then spend the money using a check instead of cash.
A check is, in effect, a personal voucher for the money, a promise made by you that enough cash is in the account to pay whatever you are paying. Because many people are dishonest, not all people and not all businesses accept checks. If you write a check when you do not have the money in your account, the bank will “bounce” the check, meaning it will return the check unpaid.
Banks charge a lot of fees for bounced checks on both ends, at your bank and at the bank of the person or business that you have written the check to, making bouncing checks the worst of financial practices. If you don’t have the money in your account, don’t write the check. If you intentionally write a check when you know you do not have the cash in your account to cover the amount, you are breaking the law.
To help you keep track of the exact amount of available money in your checking account, all checkbooks when they arrive at your house have a ledger with three columns. Those columns are 1) for deposits when you put money into the account, 2) for checks that you write to take money out of the account, and 3) for tracking the total amount of money remaining in your account, which would be your deposits minus your checks written.
This process of writing down all of your transactions, in and out of your account as they happen, prevents you from thinking you have more money than you do if you decide to verify the balance of your account at some point. It will allow you to keep track of checks that, for example, you have mailed to pay the electric bill even if the check has not yet been paid by the bank (called “clearing” your bank account). So if you verify your account balance as $300, but a check that you write for $100 has not cleared yet, then your real available balance is only $200 and you can’t spend more than that final amount to keep your balance above $0. (Programs such as Quicken work the same way, you will the same three columns to use.)
If you go below $0, the bank will either bounce one or more of your checks or it will, in some cases, pay the check for you by “overdrawing” your account. In effect you are borrowing money from the bank to do so, you must pay it back immediately and there will be large bank fees to go along with it. All around, it’s a very bad idea to have your checking account balance go below $0.
If you have a debit card for your checking account, it is the same as writing a check, it takes money from your account and you need to assure that your account does not go below $0. (Using a credit card is borrowing money from the bank, using a debit card is taking cash directly from your checking or savings account. See the lesson on Debt for more details about this idea.)
Tip: Order duplicate checks when you open your account and order checks. They are a style of checkbook that automatically makes copies of all your checks as you write them. This is a great way to keep your own records of spending for you or for your Accountant.
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Checkbooks
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