What makes a bookkeeping system work? It’s not what you think!
I’ve spent the past few days visiting family, including my aunt. (I’ve got but one aunt now, so she’s definitely my favorite!)
During my visit, she got out her ledger books of sorts so she could balance out her finances. She prefaced this by saying that other family members thought the whole system was more than a little strange.
A bookkeeping system as unique as the individual
I asked to look at what she had. She had her income and expenses spread over a couple dozen pages in a journal. Roughly each category had their own page in the journal. The amounts had several different colors, each with their own meaning. Some of the pages had yearly averages for the bills from the previous year or two. A checklist on one of the pages had letters where the check marks normally would have gone to indicate the type of expense.
Another set of pages had columns for each of the VIPs in her life (children and/or grandchildren) where she kept track of the gifts and such she gave them in an ongoing effort to be fair. Each VIP has a neon-bright piece of paper taped in the column header.
Some of the pages had a double-entry flavor to them; others didn’t.
And that was just one of the books. There were at least two books she had.
And now for a completely different bookkeeping system
My wife has a completely different and also completely unique system that she uses to stay on top of our books. She uses our checkbook register as a the-buck-stops-here dipstick on whether we’ll need to pull money from savings soon. She not only records the checks we write in the register, but also looks ahead by writing in the withdrawals that are set to come out, like credit card payments, mortgage payments, and other withdrawals directly from our checking account.
So the balance she has isn’t really how much we have in the bank, but the amount we’re going to have in a few weeks after the bills come due.
Why these bookkeeping systems work
You might get the sense that I think these systems are a tad odd. I do.
But it’s more of a “wow!” odd than a “haha” odd.
I dare not laugh at them because they work.
They have good control over the money. Neither of them bounce checks or miss payments. And the systems allow them to plan ahead for some expenses.
Here are the reasons I could discern why each bookkeeping system worked:
- They were understandable. Even if by no one else than them, they knew where things were. My aunt just has herself to keep track of things, so there’s questionable need for anyone else to understand it anyway. My wife understands her system, and lets me know when things may get a bit tight so we can know to hold back on some bigger purchases.
- They could verify what the balances should be. My aunt called up to check her balances with a phone call to an automated voice system with her bank. My wife prints out the account statements and goes through the charges that have cleared. Both aim to get things down to the cent if they can.
- They could predict potential shortfalls. I explained how my wife uses her system to predict shortfalls. My aunt, because she travels a lot, knows when she needs to pay bills ahead so they won’t be past due when she’s gone.
- They could track expenses. Although the way my aunt divided up the expenses on the different pages of her journal was unique, it was meticulously organized and extremely neat and tidy. Every amount had its place.
- They actually used the systems. This is the most important reason of all. Regardless of how good a system is, if it’s not used, it’s no good at all. My wife balances things out at least once a month. My aunt does it more often than that, I think.
Make whatever bookkeeping system habit
It’s not so much what the system is, but whether or not it’s used regularly and maintained. In addition to my wife’s hybrid checkbook system, we’re using Mint.com to consolidate our transactions and track our budget.
But, again, it can be Mint, or PersonalCapital.com, or a spreadsheet in Google Docs, or pen and paper! The format matters a lot less than using it regularly.
So if you’re not tracking your finances, start today. If you fall off the wagon and let things slide — like I have countless times! — try again. It’s a skill worth sticking to, however you stick to it!