An Ultimate Guide for Home Bookkeeping and Frugal Living


Have you ever wondered, after you have spent your weekly or monthly income, just where the money went? Are you spending more on certain items than you really want to? Are you spending more on the same item now than before, and is this because of inflation or some other reason? To get the answers you will find it most helpful to have some form of home bookkeeping.

Many persons shudder at the thought of keeping records. They may feel it is too time consuming or too difficult. But this need not be the case. Furthermore, home bookkeeping does not require keeping track of every cent you spend.

Actually there are various systems for keeping track of expenses. And you can select the system that suits you best. Whatever system is used, there are three main steps in setting it up:

  1. Classifying your expenses under main headings;
  2. keeping a record of what you spend under these headings and
  3. summarizing the expenses monthly.

The Classifications

First, find out what are the main areas of expense. Then group the different kinds of expenses under a few main headings, such as food, housing, household operation, clothing, transportation, personal allowances, income tax, savings, and so forth.

The heading “personal allowances” includes allowances to members of the family, gifts and contributions, health, personal grooming and small personal items. No detailed record is kept of expenses under this heading.

What about “savings”? There are two types of savings one for needs that may arise in the near future, and the other for long-term goals. Savings for the short term would allow for emergencies that might arise, expenses that cannot be anticipated, such as a sudden doctor bill. Savings for long-term goals might be for a vacation, travel to a convention, new furniture or some luxury item.

The Envelope System

There are various methods of keeping records of expenses. Some are simpler than others. A simple method is the “envelope” system. Each envelope is marked for the type of expense it represents, such as food, housing, clothing, and so forth. Every payday the income is transformed into bills and coins. Then it is distributed among the envelopes and the amount assigned to each type of expense is noted on the envelope.

When the time comes to meet these expenses, money is withdrawn from the appropriate envelopes. As one spends, no record is kept of it. When an envelope is exhausted, the amount noted thereon is spent. Suppose now that more needs to be spent on an item, and the envelope for it is empty. In such a case, if another envelope has surplus cash, some of the money can be transferred to the exhausted envelope. Make a note of the transfer on the two envelopes. At the time of next payday, cash remaining in any of the envelopes is transferred to the “savings” envelope. (You may make a few exceptions; for example, you may wish to accumulate funds in the “clothing” envelope for a future purchase.) Notes are made on the envelopes of any transfers.

To illustrate: If you earn $100 a week, at payday the money is converted into smaller notes and put in the envelopes, such as food, $30; housing, $20; household operation, $10; personal allowance, $20; savings, $5, and so forth. If the food envelope is exhausted before next payday, a transfer can be made from another envelope that still has money. If this is the personal allowance envelope, then you may transfer $3 to the food envelope and make a note on the two envelopes.

If by the next payday, the food envelope has $1 left, personal allowance $2 and savings $5 and the others are exhausted, then the $1 and the $2 are transferred to the savings envelope.

A record is then made of your expenses for the week: Food, $32 ($30 plus $3 less $1); housing, $20; household operation, $10; personal allowance, $15 ($20 less $3 less $2) and savings, $8 ($5 plus $1 plus $2). From time to time savings can be put into a savings account at the bank to earn interest.

The “Spike” System

Another simple method is the “spike” system. Spikes are made for as many groupings of expenses as you need. These spikes could be made of steel wire.

As you pay out money for the various expenses, keep the bills and receipts and place them on the appropriate spike according to the category of expenses. When no bills or receipts are given you, make a note on a piece of paper of what you spend; then place the paper on the spike.

At the end of the set period, the amounts on the bills, receipts and notepaper on each spike are added. Thus the total expense under each heading can be determined.

Paying by Check

There is another simplified system, but this one can be used only by those who have a checking account with a bank. The system is to put the monthly income into the bank and to use checks to pay all important expenses.

Expenses for small items can be met from time to time by withdrawing cash from the bank. Then you can take care of expenses with this cash by means of one of the two systems already mentioned.

At the end of the month, the canceled checks, other than those for cash withdrawals, are sorted into the different types of expenses, and the total of each category is determined. The totals of the categories of cash are then added to the totals of the respective categories for the canceled checks to give the expense under each heading for the month.

Accounts Book or Forms

For those who like to keep detailed records, the system of recording expenses on sheets of paper or in an accounts book is used. Accounts books are available in many stores. However, some of them provide for more record keeping than is necessary, and so, many persons have found it better to make up their own accounts sheets.

A simple form of accounts sheet will show the type of expense at the top of the sheet, with three columns to enter information as to the date, particulars and amount spent.

Whenever you pay out money, keep a record of it on the appropriate sheet. At the end of the period, each sheet is totaled and thus the expense under each category is determined.

Advantages and Disadvantages

Each of the four systems has certain advantages and disadvantages. For example, although the envelope system is simple, for it to be really successful you have to be honest with yourself. You may take out $5 from an envelope to spend under a certain category. You may actually spend only $3.50. If meaningful summaries are to be obtained, then the $1.50 left must either be returned to the envelope or, if spent on something else, a note should be made of the transfer from one envelope to the other.

Also, you may take money from two envelopes and have change left from both categories of expense. The change may become mixed and then you may not know how much belongs to each category. In this case you will find that keeping your bills will help you to find out the amount spent under each category.

As for the “spike” system, you do not always get receipts for payments. At the time of payment you may not have paper and pencil handy to make a note, and the expense may be forgotten. In such cases a pocket notebook could be carried so that such information can be kept.

The checking account system is a good one, but banks may make a service charge for transactions. This could become costly if many checks have to be made out each month.

The detailed record keeping will be successful only if you are keen on keeping records. The work involved is not really difficult, but to succeed you need to develop the good habit of recording expenses promptly. If a few days go by before you write down the information, you may try to remember what happened and find that you rely on guesswork.

So, these systems have their pros and cons. Select the one most suited to your temperament and circumstances. Develop good record-keeping habits.

Review of Monthly Expenses

Having obtained your expenses for the month under the main headings, the next step is to summarize these expenses at the end of the month. The purpose in making this monthly summary is for the review of the trend of your expenses. This will enable you to make any adjustments if you observe any undesirable trends creeping in. This will help you in planning how to spend your income and thus gain the optimum use of your money.

So you do not keep track of your expenses for the sake of keeping records. The recording of expenses alone means nothing. To be of real value, the results must be used to compare expenses in other periods. Then you can determine trends and make adjustments as circumstances warrant. Or the results may be used in connection with a budget or plan, comparing one with the other. If you take action to correct matters whenever undesirable trends begin to show themselves, then this will help you to live more in harmony with your life’s goals.




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