Why you should not clean your bank account after pay-day

Dear Dr Pesa,

Whenever my money comes into my bank account, I withdraw all of it immediately to pay bills and have cash on hand. I've been hearing people speaking about bank statements. What is that? Does my banking activity affect it and how can I improve it or correct it?

Stella.

Dear Stella,

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Bank statements are documents that are sent by the bank to account holders, summarizing all the transactions that were done over a set period, usually monthly. The bank statement contains the bank account information such as account number, the account name and a detailed list of deposits, charges, withdrawals as well as the beginning and ending balance of the period.

Since banks do not own the money in the accounts, they ought to report the balances and transactions to the account holder. To access your bank statements, one has the option of receiving their bank statements electronically via email, known as e- statements or paper statements via mail, and dependent on your bank and type of account the statements can be free of charge or the bank charges a small fee for you to access the statements.

With this, the choice of how you receive the statements lies with you with each of them having their own benefits. E- Statements can be accessed from anywhere at your convenience while paper statements can alleviate the possibility of just hitting delete, with spam mails being common in recent times.

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Does your banking activity affect your bank statements? Yes it does, because bank statements summarizes transactions in the bank account and therefore transactions done from your account will be reflected in your statements. The credit column records all the incomes to your bank account, while expenses and withdrawals are recorded in the debit column.

Your bank charges such as excise duty, ATM withdrawal charges, and M-Pesa charges, in case you use mobile banking, all fall under your expenses and will therefore be recorded in the debit column. The importance of bank statements is that they allow account holders to check for discrepancies in their account and keep track of their money.

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Account holders are able to reduce errors and cases of fraud and also identify their money habits such as spending and in turn improve on them. You can add up your expenses and if your statement does not align with your budget then you can have a clear idea of how to improve on money management.

You mentioned withdrawing all your money immediately to pay bills and have cash on hand. The danger with this is that it becomes hard to keep track and account for all your finances. Impulse buying is a habit you can pick up easily when you have cash at hand. I would suggest you look at other methods of bill payment, rather than withdrawing all your money to pay the bills. For instance, banks these days facilitate for bill payments through their mobile banking applications, you can consider this as an option to pay your bills.

In addition, depending on how large your bills are, you can have standing orders, where the bank will automatically pay the bills when they fall due, from your account. However, this method can be quite costly because every standing order incurs a standing charge. There is also the issue of security having all your cash at hand, rather than having it in a bank account. Cash is untraceable and therefore when someone breaks into your apartment or home, your car or steals it from you, that money is gone. Lastly, you can use your bank statements to apply for loans, whether personal or mortgage, your lender can ask for the bank statements to prove your financial standing.

Bank statements give you a clear picture of your financial activity and being mindful of your finances improves your financial well-being. Essentially, what you want to be looking out for in your bank statements are items such as unauthorized withdrawals or ATM card usage which can be an indication of fraud. The liability of banks on fraudulent charges is limited to sixty days so in case of any fraud cases you will need to report this early. You also need to look out for missed or late standing orders and bank cheques or deposits that have failed to go through.

Improving your bank statement or correcting it depends on how you look at it. As I mentioned earlier, bank statements ideally summarize your account activities, so really there is no ideal position. However, you can have your statements reflect a positive outlook by ensuring that there is activity in your bank account.

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Withdrawing all your money from your account and having it in cash will leave your account looking dormant, and as mentioned your bank statement can be used to acquire loans, and your lender will be interested at looking at your incomes and spending habits in order to gauge your ability to repay and service your loans, therefore it is important to have your statement showing activity rather than have it looking dormant. You can also boost the positive outlook by ensuring that your expenses are in line with your incomes, that is why it is important to track your spending habits in order to keep your expenses in check.

In conclusion, understanding your bank statement is an important part of managing your finances and ignoring your statements is not wise, so I would suggest you start looking at your bank statement and if you have not subscribed to receive, contact your bank and subscribe to your statements.

Dr Pesa this week is Felix Owour, an Alternative Investments Assistant at Cytonn Investments. 

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MoneyDr PesaBank StatementsCytonn InvestmentsFelix Owourmoney and relationships