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Archive for Monday, February 22, 2010

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The checkbook is out

February 22, 2010

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Pros and cons of various budget-tracking methods

Written check register:

  • Physically writing down expenses helps some people realize how much they’re spending on various items; keeps balance accurate, if updated on a regular basis.
  • Can be inaccurate if you forget to write down expenses or deposits; doesn’t track categories of expenses as well as software can.

Following bank’s online ledger:

  • Provides current account balance, usually updated to the minute; easy to detect fraudulent activity on an account.
  • Checks that have been written don’t show up until they are cashed; doesn’t track categories of expenses as well as software can.

Computer- or Web-based budgeting software:

  • Provides accurate balances if kept up to date; allow you to enter categories of expenses to track where money is being spent.
  • Time-consuming to enter activity into the computer system.

For many people, the days of writing checks to pay bills — and then meticulously entering the checks in a checkbook — are long gone.

“Less than 50 percent of all consumers still use the old-fashioned written check register,” says Robert Baker, education coordinator at Housing and Credit Counseling Inc. in Lawrence.

But before you scrap that check register in favor of a computer-based tracking system, experts say you need to have a plan to make sure you’re spending money responsibly.

“There is something about writing numbers down where people connect with how much they are really spending,” says Kristy Archuleta, assistant professor at Kansas State University’s Institute of Personal Financial Planning.

Baker says for many people, eliminating the checkbook register from the financial regimen is probably OK.

“If most transactions for clothing, entertainment, bill payment and travel are paid online, then some form of online tracking should have already replaced the written check register,” he says. “If a check is written at a store, many stores electronically verify the account online and instantly cash it or reject it — another instance where online has replaced the register.”

It’s important to check your bank’s Web site to make sure your account balance is above zero, Baker says. But it’s not enough.

“A financial tool is only as good as the person using it and the information they enter,” Baker says. “This is especially true of online tracking.”

That’s because if you’re constantly taking cash out of an ATM but not keeping track of how you spend it, you might not realize how much you’re spending on, say, dining out or at the work vending machine.

Other computer-based software tools such as Microsoft Money or Quickbooks — or free online software such as Personal Checkbook Advantage, BudgetPulse and mint.com — can help you figure out exactly how much of your money is being spent in different categories, such as living expenses, food and entertainment.

But just having those products doesn’t mean you’ll automatically be an online banking guru.

“The consumers who benefit most from online banking or computer-based financial tools are those who are disciplined, mobile, Net-savvy and accustomed to updating their transaction history as often as many people update their Facebook status,” Baker says.

Archuleta says there can be a drawback from being able to look in at your checking account remotely from anywhere, 24/7.

“Some people may become preoccupied with checking their account multiple times a day, which may increase anxiety and stress,” she says.

Ultimately, she says, how you track your expenses is a matter of personal preference and comfort level. What’s more important is that you do track them somehow, to avoid costly overdraft fees and to make the best spending choices.

“Either way, it’s helpful to know where you spend your money,” Archuleta says. “So whichever method is easiest for you to do, this is the method that is recommended.”

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