All About Budget Reconciliation
Get your budget and your bank on friendly terms.
So, I’m going to do that thing that speech writers do, and start this blog post with a definition that will set the stage for explaining budget reconciliation. Let’s look at the word “reconcile,” shall we? Merriam-Webster’s definition goes like this:
“To restore friendship or harmony.”
Doesn’t that sound nice? Friendship. Harmony. Mmm.
In the world of budgeting, reconciliation is the process of making sure that your budget matches your bank balance—or, in other words, as the definition suggests, restoring harmony. Removing disagreements.
Benefits of Budget Reconciliation
Reconciliation isn’t just nice, it’s essential. If your budget doesn’t have the right number, you won’t know how much money you truly have to budget with. Without reconciliation, you’re in danger of coming up short or leaving dollars without jobs (a huge no-no!).
Plus, there are the odd occasions when the bank gets it wrong, and reconciliation is how you spot those errors (so you can have them corrected). Totally worth your time, no?
But, the biggest benefit of reconciliation is actually the best of them all. The process of matching your budget and your bank balance makes you stop and take note of where your money goes—a key ingredient to achieving your biggest financial goals.
And, it’s easier than you think!
The Power of Paying Attention
If you’ve tried other budgeting apps, right about now you might be thinking, “But, why can’t I just connect my budget to my bank account, and let everything automatically sync?”
Well, you can, actually. But, you’re here, and that probably means the old automatic syncing method didn’t do you any financial favors.
Let me guess, you set up your initial budget, linked up your bank accounts and promptly forgot all about your budget until weeks later. You probably overspent in a few categories, perhaps your transactions didn’t sync up quite right, and when you finally cracked open your budget, again, it was completely out of touch with reality.
Instead of actively managing how you released your hard-earned dollars into the world, you let them slip through your fingers on a million things that, in retrospect, weren’t really that important to you (at least not in comparison to your big-picture goals) …
… just like YNABer, Sam, who said, “YNAB broke this monthly cycle by allowing me to see the immediate effects of day-to-day spending and their impacts on my long-term goals. Overspending one month directly impacts the next. Through regular recording, budgeting and reconciling I interacted more regularly with my finances and the overspending became less frequent. If I wanted a new toy, I had to make it work with all my other responsibilities and goals.”
(By the way, Sam was rewarded for his efforts with a twelve-month trip around the world. #worthit )
It Takes Mere Minutes a Day
If the idea of having your mind on your money (and your money on your mind) doesn’t quite feel appealing, then you should know that it’s much easier, and far more rewarding, than you might suspect. And, with a little practice, budgeting will become so second-nature, that you’ll hardly even realize you’re doing it. Really.
Here are the basics:
1. Enter All of Your Transactions
The truth is, I kind of like entering my transactions into YNAB. It feels like a win every time I spend money precisely how I’d budgeted to do so, so recording my spending is a kind of mini, celebratory ritual. Plus, it involves crumpling my receipt into a ball, which is always fun. You can read all about it here.
If you’re less likely to record every transaction, or simply worried that you’ll forget one, not to worry. YNAB allows you to import them via direct import and file-based import.
The coolest thing is, you can enter your transactions, manually, and import them, too. This is a great way to double-check your work (did you enter the tank of gas on the way to work, today?) and catch automatic debits (Oh! Netflix processed this month’s payment, last night!).
Try to stay on top of transaction-entry, daily, and frequently import transactions as a double-check. It really only takes minutes, and it makes reconciling your budget a breeze.
2. Adjust as You Go
Many people come to YNAB for the debt freedom, but they stay for the budgeting freedom. The Four Rules are totally livable—Rule Three, Roll With The Punches, in particular. It gives you the freedom to change your mind, mid-month, as reality unfolds.
Maybe you’re not driving as much as you anticipated, so you’ve got extra gas money that you could really use to cover an unexpected increase on your electric bill? With Rule Three, you’re free to scoot those dollars from the fuel category in your budget over to your utility category. Problem solved.
Roll with the punches, as you go, and you’ll always be following your plan, putting your true priorities first.
3. Stay in Harmony with Your Bank
Here we are, at last, at the reconciliation bit of reconciliation. If you stay on top of Steps #1 and #2, it’s seriously easy to do. In short, you compare the transactions in your bank account statement to the transactions that you’ve recorded in YNAB. If they match, you clear them. If they’re missing, you add them.
… and when your YNAB account register matches your bank account statement, you click the “Reconcile Now” button on the top-right corner of the screen in YNAB’s web app:
When you click that button, YNAB will ask you if the number in YNAB matches your bank. It looks like this:
When they match, click “Yes” and let the wave of pure joy roll over your body. That “yes” means that your budget knows exactly how many dollars you have, and you’re positioned to win if you stick to your budget!
Reconcile as often as you like, and at least as often as you get paid. When you get new income, reconcile with your bank, first, and then give every dollar a job.
Make It a Date
Just like with human relationships, if you want harmony between your budget and your bank balance, you’ve got to nurture things along. Make it part of your regular routine to spend time, together. Identify differences and get everyone on the same page. When you stay in touch, regularly, it’ll deepen your connection and help you get to the next step—financial freedom—that much faster.
For more help, check out Jen’s five-minute budgeting routine.