What is a bank statement?

When you're walking back from the mailbox with a pile of junk mail, it can be tempting to just toss it straight in the garbage can. But make sure you fish your bank statement out before you launch those letters into the trash with your best Kobe impression. If you don't know why it's so important, then you're in the right place. Keep reading if you've wondered, "What is a bank statement, and how can I use it to build my financial health?"

What is a bank statement? 🏦

A bank statement is a document issued by your bank filled with information about your account. Whether online or traditional brick-and-mortar, banks are legally required to send a statement each month about accounts in which you've made at least one electronic fund transaction. Most banks or credit unions send statements every month, regardless of activity levels. 

Depending on your bank's policy and preference, you may receive bank statements via snail mail or electronically.

Contents of a bank statement 🗺️

A bank statement maps your finances. It includes a summary of all transactions you've made during the period it covers. 

Bank statements will include:

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• Deposits: These are any cash deposits, direct deposits, or other transactions that add money to your account. 

• Withdrawals: Any money you have taken out of your account will also be recorded, whether you used an ATM or debit card, wrote a check, or made an ACH transaction using a third-party service like Venmo.

• Fees: Fees are common for things like overdrafting your account — spending more than you have in the bank — or failing to keep sufficient funds. 

• Interest: If you have earned any interest on your account, you’ll also see that detailed here as well. 

Your bank statement will cover a specified time, such as a month or quarter. Each statement tells a financial story. You should expect to see how much money you had in your checking account at the start of the month. You'll see any transactions, and you'll wrap up with the closing balance for the month. Ultimately, a bank statement is like an economic "trail of breadcrumbs" for the month, showing you where you've been and where you are now. 

Bank statement: Tool you can use 🛠️ 

From your bank's point of view, statements may be sent simply as a legal obligation, but for you, your bank statement can be a powerful tool to help you build your financial health. 

Build a budget 📊

Your bank statement can be a big help in building a budget. You can use it to note which charges show up every month, which is called recurring charges. Make a list of your recurring charges so you can track and adjust as needed. You may not be able to do much about that monthly water bill, but you can save by canceling one or two of your five streaming services. 📺

Pick a plan 💵 💪 

Your bank statement can also help you put some money away for later. Saving for the future should begin with some goal setting. What do you hope to accomplish? Is your saving short term or long term? Are you trying to save for a new car next year or retirement in a few decades? The answers to these questions should help you decide on your savings plan. 

Once you've picked a plan, you can use your bank statement to keep track of your savings goals. Reviewing your statement helps you see when you're spending too much on things that won't help you meet your financial goals. 

Tally for taxes and trustees 💸

Even if you don't care to keep meticulous records for yourself, you should be keeping them for Uncle Sam. When it comes time to file your taxes, having your bank statement handy can simplify the process. Filing taxes is legally required, so why not make paying taxes as easy as possible? Make a folder so you can lay hands on your statements with ease. 

Similarly, trustees may ask for bank statements when you apply for a loan. This is a common practice when you hope to take out a mortgage or buy a new car. Money lenders want to know if you are financially healthy enough to repay the money you are asking to borrow. So, keeping three months' worth of recent bank statements is a healthy practice. Just make sure you store them in a secure place.

Affirm the accuracy ✅

Finally, bank statements help you affirm the accuracy of your accounts. Check to make sure each deposit, withdrawal, check, or charge is accurate and accounted for. Though it's uncommon, banks can make mistakes, so it's always wise to review your accounts. 

It's also a good idea to review your statements to ensure there are no mistaken or fraudulent charges. Your bank may offer consumer fraud protection, but unless you alert them within a set time, they can't take action. Pay attention to your statements to avoid missing your window of opportunity to file a claim and get your money back. 

Bank statement blueprint 👷

If you've ever held a bank statement and wondered what you’re supposed to do with it, this next section will clear things up. 

Review

Regularly review your bank statements to verify your accounts are accurate, your charges are fair, and your fees are just. Get into the habit of looking over your statement within five days of the time you get it. If you wait too long, you risk the info being outdated by the time you get to it. 

Use

Put your statement to work. Use it to help you build and sustain a workable budget. You should also use your bank statement to confirm you're on track to meet your financial goals, both for short-term savings and long-term retirement. 

Ask

When you receive your bank statement, use it to ask yourself some hard questions. These may include:

• Where is my money going?

• Am I overspending in one area?

• Am I on track to meet my financial goals?

• If I need to save money, where should I cut back?

Learn

If you see something you don't understand on your bank statement, use it as an opportunity to learn. Be bold and ask family or trusted advisors for help. You should also expect to have bumps and hiccups along the way. Remember: Building healthy financial habits is a process, so don't get down on yourself if you don't fix your overspending overnight. 

Fill your knowledge arsenal ⚔

It may look like junk mail, but if you toss your bank statement before you read it, you'll miss out on several benefits. You can use your bank statement to help build a budget, plan your savings, and verify your accounts are accurate. Bank statements arm you with knowledge essential for your financial health. 

To learn more about other tools you can use to stay on top of your finances, check out the Greenlight Learning Center, which helps families come together to learn something new about money, including how to earn, save, and invest.