Balance

Balance
A balance is the amount of money available for withdrawal through a bank account, or an amount of money owed to a financial institution. It can also be used to describe the process of budgeting and tracking your finances, as in “balancing a checkbook.”

What is a Balance?

A balance is a sum of money, either available for withdrawal, or owed to a financial institution. Sometimes called an account balance, it is the amount of money you have in a bank account, like a checking or savings account. Basically, your balance is how much money you have available to you for spending or saving. When you spend money, your balance goes down, and when you deposit money into your account, the balance will increase.

Balance can also be the total amount of money that you owe. This might be for things like credit cards, mortgages, or auto loans.[1] If you owe money to a lender, bank, or financial institution, the amount that you owe is considered your current balance.

Another use for the term balance is to refer to the tracking and recording of your expenses. This is called balancing a checkbook, balancing your finances, or balancing the budget. You do this by tracking every purchase and subtracting them from your current account balance. By balancing your finances or a checkbook on a regular basis you’ll always know exactly how much money you have.[2]

How is a Balance determined?

The balance in your checking or savings account is determined by deducting all purchases or withdrawals from the total amount available. Anything left over after the deductions is considered your current balance. For example, let’s say you have $100 in your checking account. You make three purchases: one for $20, one for $5, and one for $2. After balancing your budget you’ll find that you now have a $73 balance in your checking account.

A balance owed to a financial institution is figured in a similar way. Your starting balance is the total that you owe before making any payments. As you pay off the loan or credit card your balance will go down.[3] So if you have a credit card balance of $2,000 and make a $500 payment, then your new credit card balance is $1,500.

Why is a Balance important?

Keeping track of your balance is the best way to closely monitor your finances. Knowing how much money you have available to you for spending can inform your decisions about making other purchases. Some banks will even require you to maintain a minimum balance in your checking or savings account in order to avoid additional fees and penalties. This will depend on the specific bank or financial institution.[4]

At the same time, knowing your credit card or loan balance is also important because you know how much you have left to pay, which can affect your daily, weekly, or monthly budget. Knowing how much you owe, and how long it will take to pay it off is an important part of being financially independent.

References

  1. “Balance” InvestorWords. Accessed August 24, 2016. http://www.investorwords.com/390/balance.html.
  2. Lehu, Pierre “How to Balance A Checkbook” Dummies Personal Finance. Accessed September 7, 2016. http://www.investorwords.com/390/balance.html.
  3. “Balance” Business Dictionary. Accessed August 24, 2016. http://www.businessdictionary.com/definition/balance.html.
  4. “Minimum Balance” Investopedia. Accessed September 7, 2016. http://www.investopedia.com/terms/m/minimum-balance.asp.