How to Budget Personal Finances Like an Accountant

How to Budget Personal Finances Like an Accountant
Russell Smith
In Go Money

If you are reading this, chances are you dream of being “good with money”.

Many people envy those that handle their money well, wondering why they always end up overdrawn or out of pocket, while others don’t seem to have a financial care in the world.

But being good with money isn’t a gift. Anyone, given the right mindset and processes, can manage their finances well. Some just need an extra bit of support and guidance.

When it comes to money, what better place to find guidance and support than an accountant? While many people just see accountants as bean-counters slowly working their way through tax returns, what an accountant actually does is provide integral financial support to businesses, assuring their survival. Accountants dedicate their career to managing money and making sure businesses stay afloat.

If you are struggling to get on top of your budgetary requirements, here is some expert advice on how to manage your money like an accountant manages the finances of a business.

Identify Your Desired Net Gains

What constitutes success for your financial needs? Finding the line between gain and loss is absolutely essential.

Identify your assumed income over a period of time — say one month or a quarter. Now look at your current financial health; your debts, essential expenses and required savings amounts.

Once you know how much you need to save to survive, you are able to make financial choices based on your required net profit.

Accountants must do this regularly in business. If they don’t ensure income and expenditure is balanced, the business will collapse. Likewise, if you don’t ensure the same balance, your financial situation will continue to slump.

Record and Track Your Finances

Sound financial management is all about control and knowledge.

Successful businesses keep records of everything; every single transaction that is ever made. Why? So there is never a question of where their money went.

Accountants manage and track the financial health of a business through software. It may seem a little extreme for personal finances, but even an Excel spreadsheet can be of use here — although other, more advanced software is available.

So how do you record and track your finances?

Input everything financial into a well-designed spreadsheet or piece of accounting software.

Record your income and every expense you make. Label your transactions, give them titles and categorise them. With this information in front of you, you can gain a real picture of where your money is actually going.

Spending £20 on takeaway every now and then might seem alright, but when you add every time you buy Chinese to a spreadsheet, you’ll soon get a better understanding of just how badly it is affecting your bottom line.

With records available, you’ll be able to make decisions about how to spend your money and achieve your budgetary dreams. Without records, you’ll never be certain exactly how much is being spent where, making management of your situation a lot harder.

Establish Spending Accounts

Keeping track of what is being spent where is often difficult. Those little payments for coffee may seem innocuous, but they certainly add up fast.

In a business environment, maintaining financial control through one expenses account leads to confusion and often overspending, as money allocated for more important obligations can be spent on non-essentials.

To control and monitor outgoings, accountants often establish separate expense accounts for different aspects of the business. Supplier accounts are separate from payroll accounts, payroll accounts are separate from the building expense accounts — it goes on.

Having so many bank accounts might seem overly complex, but it ensures that money can be allocated very precisely and that it is spent only on appropriate expenditure.

This is the same in our personal lives.

Having separate accountants ensures we don’t overspend where we shouldn’t and underspend where we should. For example, consider setting up these five accounts:

  • Rent and Bills
  • Debts and Loans
  • Household Expenses
  • Personal Spending
  • Savings

Allocate your budgets accordingly and you’ll have far better control of what is going in and what is going out.

Create Financial Reports

Part of an accountant’s job is to produce reports for their clients. These reports can vary in purpose and data included, but their ultimate goal is to inform interested parties about the financial health of a business over a set period of time.

From these reports, businesses can then make decisions moving forward, able to see exactly how the company has performed in specific financial areas.

Applying this process to your personal finances allows you to take stock and adjust your efforts if necessary — or give yourself a pat on the back.

To create a report, simply identify what information you want to know. If the main goal of your budget is to create savings, perhaps for a house deposit, then find the data most relevant to that. Likewise, if you plan to pay off loans or debts, find the most relevant information for that instead.

The key data you’ll be reporting on is how much you’ve spent vs how much of your goal was achieved. Using your reports, you can see if you are on your way to success or failure.

Let’s say you need to save £500 towards your deposit, but you only saved £350. You can now look at your report and see where else money was spent and how you can recover more of those costs during the next budgetary period.

Use Zero-Sum Budgeting

Zero-sum budgeting is the process used by businesses under intense financial strain.

They idea is that a budget used previously is never just accepted as being okay to be used again, even if your income hasn’t changed.

At the start of every budgetary period, monthly, quarterly, etc, reevaluate your position. Look at what your net profitability needs to be, then analyse your expenditures.

The point is that all expenses must now be justified again. Last period, you may have had a budget of £500 for food shopping. Don’t just use this figure again. Go back to the budget, use your monthly reports and ask: is that still reasonable? Why or why not?

Don’t accept anything as set in stone.You could be saving more, or you might be living a lifestyle more frugal than necessary.

Conduct Spending Analysis

Accountants are always worried about businesses overpaying for things they really don’t need to; suppliers, interest, rent, etc. Why pay over the odds when that money can be put to use elsewhere?

Trouble is: it’s very easy for businesses and individuals alike to get accustomed to their expenses being the way they are. Once a financial agreement is set up, it is very unlikely that you’ll go back and change it.

From a personal standpoint, this includes things like:

  • Mobile phone contracts
  • Utility bills
  • Credit card interest payments
  • Gym membership
  • Personal Insurances
  • Food and household essentials

Part of an accountant’s role in maintaining a healthy budget is to look at expenses and find ways to lower them. Obviously they cannot stop ordering supplies, else the business they represent wouldn’t be able to make and sell goods, but they can conduct a spending and market analysis to attempt to find cheaper solutions.

The same philosophy can be applied to your personal budget. There are always options available to change energy suppliers, move debt and shop in different stores.

Do as an accountant would. Invest time searching for the most sound deals available and your budget will thank you for it.

Russell Smith

About Russell Smith

Russell Smith is a business owner, chartered accountant and financial expert. Through his company, Russell Smith Chartered Accountants, he has helped thousands of businesses achieve their budgetary goals. Contributor to The Guardian, The Telegraph, This is Money and The Daily Mail, Russell is a true finance guru.

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