I keep spreadsheets on everything, including my financial accounts. I also regularly reconcile my accounts, which means making my spreadsheets match what the statements say. There is a technique that I have developed of checking-off each transaction in the spreadsheet so that the reconciled balance matches that on the statement. This provides a backwards-looking confirmation that the organization that I am trusting to store my assets, or to tally-up my liabilities, is doing it correctly.
Just because it’s a big company, it doesn’t mean that its accounting processes are infallible. What’s more, while most banks will guarantee that any fraudulent or incorrect charge on your account will be refunded, that’s only true if you notice and report it within a fixed window, such as thirty or sixty days. Therefore regularly reconciling your accounts provides a specific and well-defined process of checking each transaction is present and correct in their system and that there are no additional or unexpected transactions.
One of the requirements of a system like this is that you have to enter every transaction yourself into a spreadsheet, or other similar tool, every time you become aware of it. That might mean recording a credit card purchase either immediately when it is made or later when you’re at your computer with the receipt. It might also mean recording a check payment in a spreadsheet when you write the check. For income. you might record a credit in a spreadsheet as soon as you are alerted to it or when you electronically deposit a check.
A secondary advantage of a system like this is that you always have a record of what your account balance would be if all of the pending transaction went through immediately. This enables you to plan ahead and make sure that money is where it needs to be. In fact, this whole approach to tracking and reconciling using spreadsheets started for me when I was at university. I was planning to go on vacation to Paris with my girlfriend. When I went to an ATM to withdraw some cash to take with me I discovered that my account not only had no cash in it but was also seriously overdrawn. Somehow, we still went to Paris. We stayed, for free, in the apartment of a relative who was on vacation herself, we ate baguettes into which we inserted slices of cheese, and we drank cheap French wine that was not bad for the pennies it cost. I even used the last few pounds of my overdraft to buy her a very inexpensive diamond engagement ring. I proposed to her on the viewing deck of the Eiffel Tower as tourists watched, took pictures, and clapped.
After the alarming experience of realizing that I had a lot less money than I thought I did, I committed to tracking and reconciling my financial accounts. This is what I have been doing for the past twenty-five years.
A tertiary benefit of these spreadsheets is that you can extend them into the future by adding anticipated and estimated transactions, transactions that can be converted from the estimated state to the finalized state when they occur. This enables short-term financial planning by providing a mechanism to anticipate and account for cash-flow problems well before they manifest.
But the biggest benefit of creating and curating these spreadsheets is not the spreadsheets themselves, nor the protection against erroneous or fraudulent transactions. The primary product is insight. By regularly focusing on your accounts, it’s possible to develop an intuitive feel about how money is flowing and accumulating.