Lesson 1: Checkbook Duh! Factors

Before you can dive into managing your personal finances (checkbook balance, budgets, savings, loan payoffs, etc.), there are some basic money management concepts that you need to know.  Duh! Right?

Perhaps you already know the basics, but please give the following questions and answers a read before continuing to Lesson 2: A Map for the Personal Finance Processes.

According to the app, how much money does this person have in the bank?
According to the checking account app on this page, this person has $2,520.31. 

How much money does this person have to spend?
When you add that last bit, “to spend,” money management requires more than knowing your checking account balance. There’s a chance that the balance shown is not actually available.

How can you determine what you can spend?
The answer comes from two directions on a timeline:

  • Backwards to your lagging commitments
  • Forwards to your future commitments

Lagging commitments are made up of checks (electronic or paper) and money transfers that the bank hasn’t cashed yet. So, for instance, this person might have sent a check for rent in the amount of $2,000 that hasn’t cleared the bank. That means, the real balance on this account is $520.31, assuming no other checks are waiting to be cashed.

So, you have $520.31 to spend, right? Not so fast. 

Future commitments are made up of checks to be issued (e.g., for bills you know will arrive). For instance, if your average utilities expense is $200.00 a month and you haven’t paid those bills yet, that takes your potential spending to about $320.31, depending on the actual utility bills. 

If you were thinking about buying a new bicycle with that $2,500 balance you thought you had, you might be thinking, “I have another paycheck on the way. It will get here in time to cover my rent and more.”

  • Will it arrive in time?
  • Is the current balance truly extra money?
  • How do you know?

How do you make future commitments when they exceed your paycheck deposit?

Assuming your monthly income exceeds your monthly required commitments, the answer to this question takes planning. If you are just starting out and you don’t have any money saved, setting up a spending plan can be a challenge, especially if all of your biggest bills are due at the same time. 

Don’t worry just yet, the following lessons provide insight that might help.

Next Lesson …

Sometimes it’s easier to understand where you are going if you look at a map before venturing forward. Lesson 2: A Map for Personal Finance Processes, introduces the basic processes you will need to understand and perform. 

Published by Cindy McCourt

I wear many hats: author, website planner, Drupal consultant, instructional designer, trainer.

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