Almost everybody opens their bank statement for the same reason: to see the balance. They scroll to the bottom, see the number, close it. The dozens of lines above it, which are exactly the answer to "where did the money go?", go unread.
It is not laziness. A statement simply was not written to answer that question. It was written to prove the bank did what it was asked: so many lines, so many dates, so many descriptions with abbreviations only the bank's system understands. The information is all there, but it is arranged in the wrong order.
This piece is about how to read a bank statement in the right order: once, over a whole month, with four questions.
What is on a bank statement, and what matters?
Three columns matter, and one line at the top.
Every bank lays out its statement its own way, but nearly all of them have the same pieces:
- The period and the balances. At the top: from which day to which day, the balance the month started with and the one it ended with. That is the line that says whether the month closed up or down, and it is the only one most people read.
- The date. Often there are two: the transaction date, when it happened, and the value date, when it counts towards the balance. For seeing where the money went, the first is enough.
- The description. The line saying what it was, abbreviated and in capitals. It is the most important column and the hardest to read.
- The amount, as a debit or a credit, and often the balance after each movement.
The balance after each movement looks useless and is not: it is what lets you check that no line is missing. If one line's balance plus the next movement does not give the next balance, something is wrong with what you are reading.
How do you read the descriptions on a bank statement?
By the first word, which gives the type, and by the rest, which gives the recipient.
Descriptions vary from bank to bank, but the same types keep coming back. Some of the most common on Portuguese statements:
| In the description | What it usually is |
|---|---|
| COMPRA, then a shop name | A debit card payment |
| DD, DEB DIR, then a company name | A direct debit: electricity, water, phone, gym |
| TRF, TRANSF, then a name | A transfer, sent or received |
| LEV, then a place | A cash withdrawal |
| PAG SERV | A service payment: taxes, invoices with a reference |
| MB WAY, then a name or number | A payment or transfer by phone |
The name that follows is not always the one you know. A shop can appear under the name of the company that runs it, a gym under its legal entity, a subscription under its payment processor. When you do not recognise a line, the amount and the date are usually enough to identify it. When even that fails, it is a line worth looking into, for good reasons.
And one case always misleads: the credit card. Purchases made with it do not appear one by one on the account statement. A single line appears, once a month, with the total, and the purchases are on the card statement, which is a separate document. Anyone reading only the account statement thinks they spent less than they did.
Which questions do you ask of each line on the statement?
Four, and each one sorts the month in a different way.
- Is it the household's, or one person's? In a shared home, it is the question that separates what goes into the split from what belongs to each person. Even living alone it helps: the household's costs are nearly always fixed, yours are nearly always decided.
- Was it fixed, or decided this month? The rent was not a decision this month. Dinner was. Nearly all the room to move is in the second group, as explained in fixed and variable expenses.
- Does it repeat? Mark everything that appears every month under the same name. It is the list of your subscriptions and commitments, and it is nearly always longer than you thought.
- Is it right? A double charge, an amount that went up without notice, a subscription you thought you had cancelled. A statement read carefully nearly always catches one of these.
There is no need to ask all four questions of every line in one go. One pass over the statement per question is quicker, and each pass gives a different list.
How do you see where the money went from the bank statement?
By adding up each group, and only at the end.
After the four passes, the lines are marked. Add up each group: how much was household, how much was fixed, how much was decided, how much repeats. For most people the result holds two surprises.
The first is the weight of small purchases. A four-euro line draws no attention; forty four-euro lines in a month are a hundred and sixty, and they are often one of the biggest categories in the month without ever having been seen as one. It is covered at more length in where does my money go.
The second is what repeats. The list of things leaving every month with no decision is nearly always longer than people expected, and it is the first place where room appears without costing any sacrifice. Subscriptions are the clearest example, and they are covered in subscriptions: the money that leaves without anyone deciding.
How many months of bank statements should you read?
One whole month, carefully, and then the whole year just for the rare ones.
One month gives you the picture of daily life. More months read line by line add little, and wear you out to the point where the reading stops being careful.
But some costs a single month misses: annual insurance, road tax, a membership fee, a yearly subscription. For those, go through the last twelve months of statements looking only for the big, rare lines. They are the ones that break budgets in the second month, and they are what how to make a household budget that survives month two is about.
What do you do after reading the bank statement?
Write down three things, and no more.
A statement reading that ends with nothing written down is forgotten within a week. One that ends with a list of twenty conclusions is too, because nobody acts on twenty things. Three is enough:
- The number that surprised you most. A category, a total, a sum of small purchases. It is the one you will want to see again in a month.
- One thing to cancel or correct. The forgotten subscription, the wrong charge, the direct debit for a service you no longer use.
- One rare cost that needs to go into the budget. The one that only turns up once a year and was nowhere to be seen.
And do the same reading a month from now, shorter, just to see whether the surprising number has moved.
Where to start reading your bank statement, today
Three steps, and they fit in an afternoon.
- Download the statement for the last full month. As a PDF, from online banking, and the credit card one too if you have a card.
- Make four passes, one per question. Household or person, fixed or decided, repeats, right. Mark the lines in pencil, or on a sheet beside it.
- Add up and write down the three conclusions. The surprising number, what to cancel, the rare cost that was missing.
We keep a page of frequently asked questions about budgeting and everyday money, with a short answer to each one and the full piece one click away. If you want to see it, it is here: frequently asked questions.
This is educational writing. It is not financial advice or an investment recommendation; for advice on products, speak to a professional registered with the CMVM.