Balancing your checkbook is a method of verifying that your records (your checkbook register entries) match the bank's records, as shown on your monthly bank statement. The method of accomplishing this task is changing in the electronic age, with the use of online banking and personal-finance software, but the pencil and paper method still works. The best time to balance your checkbook is within a few days of receiving your monthly bank statement so there are fewer transactions to wade through.

You have sixty days to inform the bank of any errors on your statement (and banks DO make errors). If you don't balance your checkbook monthly, how will you find an error if it does occur? Of course, it's much more likely that you made an error when recording a check or deposit or when adding or subtracting amounts in your checkbook register. You're unlikely to find your own errors unless you balance your checkbook each month or start bouncing checks, an expensive way to find out you made a mistake.

Step One: Reconcile Your Checks and Deposits

First, determine if there are any checks that haven't cleared the bank yet by sorting your canceled checks in check number order or by using the listing of cleared checks that's printed in a separate section of your bank statement. In your checkbook register, check off each item that cleared the bank, making sure the amount you recorded in your check register agrees with the amount shown on your bank statement. Watch for transposed numbers in your check register — for example, $97 instead of $79.

Step Two: Reconcile Your Deposits

Make sure that each deposit shown on your bank statement is recorded in your check register, including direct deposits. Next, go through your deposit slips and paycheck stubs and make sure that all the deposits you made are included on the bank statement. As you verify each deposit, check it off in your check register.

Step Three: Reconcile ATM and Debit Card Transactions

Go through your ATM and debit card receipts and check off each transaction on the bank statement and in your check register. Record any transactions that are on the bank statement but not in your check register. If you're not sure what the transaction is, call your bank immediately.

Step Four: Record Interest Earned and Bank Fees

Check your bank statement for fees you may have incurred on your account and interest you may have earned on your balance, and record them in your check register.

Step Five: Complete the Balancing Form

Your bank statement may include a form that you can use to balance your checkbook. If not, use the Checkbook Balancing Form provided here, using the following directions:

• Go through your checkbook register and list the deposits that you did not check off in your check register as having cleared the bank.

• Total the column of outstanding deposits.

• Go through your checkbook register and list the outstanding checks (as well as any outstanding debit purchases or ATM withdrawals) that have not yet cleared the bank.

• Total the column of outstanding checks, debits, and ATM withdrawals.

• On line 1, enter the ending balance shown on your bank statement.

• On line 2, enter the total outstanding deposits.

• On line 3, enter the total outstanding checks.

• On line 4, enter the bank fees shown on your bank statement.

• On line 5, enter interest earned as shown on your bank statement.

• Calculate your balance by adding and subtracting the numbers on the bottom section of the form, as indicated by the plus and minus signs. Enter the total on line 6 and make sure it matches the balance shown in your check register. If it doesn't, check your math on the form first, and if you still don't find the error, start from the beginning and check all your entries on the form. Common errors include reversing numbers, subtracting a deposit instead of adding it, adding a check instead of subtracting it, making math errors, and omitting automatic payments from your check register.