Accounting
for a Better Life’ is a book in which John Pass more proposes a new, simplified
and fun approach, to home and personal bookkeeping and accounting.
The new
methods, based on what he calls, domestic well-being accounting, enable people
to gain control of their personal and domestic, financial affairs. The system
provides the necessary visibility so that users will know exactly what their
money is being spent on, and how well balanced their spending is, in relation
to its distribution.
The balance
is across basic domestic needs and responsibilities, discretionary spending on
holidays, leisure and entertainment, and provision for future well-being.
Knowing about the current and past spending patterns, users can determine where
and by how much, changes might be needed. Budgeting and associated feedback,
facilitate the monitoring of such financial planning.
The author
believes the new methods have the potential to be adopted as a formal,
sub-discipline of business accounting, eventually perhaps, with suitable
certificates and diplomas for those who learn how to use it successfully.
With such
recognition, the motivation for appropriate investment from industry and the
state becomes real, so that domestic accounting, its further calibration and an
associated training infrastructure, can all be further developed and refined.
He proposes
that in time, such methods should become an established part of the school
curriculum. Through this, youngsters will be able to achieve the best possible
foundation to accept and take on the financial responsibilities that are
associated with success, in modern life.
In the
prevailing UK situation, of a very severe debt crisis, the new approach, almost
in passing, provides the required visibility on the state of a family's
financial affairs, to provide warnings of potential difficulties so that the
necessary defensive actions can be taken, to prevent falling into the debt
trap. For those already experiencing some debt, the new methods provide the
necessary visibility on their finances to facilitate the required planning and
control, required to best manage debt recovery.
If people
realized the extent and value of the average, domestic, cash turnover, in the
course of a lifetime, it seems amazing that serious, financial management is
not already, demanded. If an equivalent, small business, with similar turnover
was not effectively managed, the owners would probably have shareholders,
accountants and Company House, knocking on their doors.
Accounting
has traditionally been thought of as a rather boring, difficult and tedious
activity by most people. It is also recognized as somewhat of a challenge, in
considering the length of training required to achieve professional status, as
a Chartered Accountant, or similar.
Having
started to manage his own accounts at home, soon after the arrival of the PC,
in the late eighties, John Pass more tried to adapt the traditional,
business-oriented way of using accounts, with all the usual, end-of-period
reports. He uses commonly available, general purpose software, an accounting
package (Microsoft Money) and a spreadsheet package. He has adapted the
maturity of double entry accounting and has also had to ensure his methods
could cope with multiple currencies in use, whilst working overseas for thirty
years.
Although it
was basically satisfactory, in so far as it produced the overall figures on net
worth, John realized two things; first, the traditional business focus and
motivation on profits and shareholders’ value, understandably, had little
relevance to the domestic situation, and second; there was no visibility on the
nature of the bulk of the day-to-day, domestic income and expenditure. In
addition, the terminology and the overall style of business accounting, he
found, not at all conducive to successfully and easily running accounts, for a
home environment.
Over a decade,
John Pass more has gradually evolved a new approach to personal and domestic
accounting. At a fundamental level, he has made everything much easier to
understand and use. This was achieved by a range of simple techniques, such as
rigorous naming conventions and a simplified version of the so-called,
accounting equations. More importantly, he introduced a new focus for home and
personal accounting, which he calls, domestic well-being. Essentially, domestic
well-being, or DWB, provides a hierarchical structure for defining and
recording, the increases and decreases, making up day-to-day, domestic
financial activity.
At the top
level, there is a 3-way split into Basics, Discretionary and a catch-all, of
Others.
The Basics
are sub-divided into Essentials (utilities, food and drink, clothing, health,
etc.), Responsibilities (taxes, mortgage, licenses, maintenance, insurance,
etc.) and Family (presents, and personal commitments, etc.). Similarly,
Discretionary includes asset purchases and sales, Nice to Have (holidays,
leisure, entertainment, etc.), Investment for the Future (Home improvements,
pension contributions and other investments, etc.). Others are for uncontrolled
changes, such as prizes, inheritance, gains and appreciation, fines, losses and
depreciation, etc.
This DWB
structure is used as the basis for the domestic reports and for categorizing
all the transactions, as they entered into the accounts, as part of
bookkeeping.
A sub-title
of his book 'Accounting for a Better Life', is 'Gain Control of Personal
Finances'. Following an overview of control and a comparison of a number of
typical control environments, the book describes how control can be applied to
financial situations. The visibility now afforded by DWB means that a new set
of financial reports can be defined. These replace the business style, Trading
Account, Profit & Loss Account, Balance Sheet and Cash Flow Statement. The
new set of statements, tailored directly for the domestic situation, include
the Domestic Well-Being Statement, the Domestic Balance Sheet and the Domestic
Cash Flow Statement.
Readers will
be generally aware of the typical, business ratios such as Gross and Net profit
margins, Return on Capital Employed, and over twenty other ratios. Although
vital for management and control in business, these ratios have absolutely no
bearing on domestic finances. However, with the visibility provided by DWB, a
whole new group of Domestic Financial Factors suddenly become evident. John has
defined five, major new factors and a host of secondary factors. For example,
the Basic Cost of Living Factor (BCLF) is the ratio of Basic Domestic Decrease
to Total Household Increases, whilst the Well-Being Contribution Factor (WBCF)
is the proportion of Discretionary Domestic Decreases, compared to the Total
Household Increases. These factors provide the yardsticks, by which various
characteristics of domestic life can be both qualified and quantified.
These
factors open up new areas for comparison, measurement and control of domestic,
financial situations, based on family size. Their real benefit however, has to
await calibration and an accumulation of data, so that a parallel can be
achieved with the business concepts of comparison to industry averages, or
norms. The domestic averages will have to be built-up, over time. In the
future, a BCLF 3 of 0.43, for a family of three for example, could be compared
with the value of the factor, found for other families of three, across
regions, or internationally, across continents.
Even without
this capability until later, other forms of financial control suddenly become
immediately feasible, in a practical way. For a start, with the new visibility
provided, balancing or redistribution of expenditure across the Basic and
Discretionary categories for example, now becomes possible, with due attention
always being given to Investment for the Future (IFF).
John Pass more provides the necessary background and information for anyone to get
started with setting up and running their own, domestic accounting system.
Because of the simplification and visibility provided, which gives relevance to
the financial activities of each and every domestic environment, with its own
character and content, the author believes he has developed a system which can
be fun to use. Once familiar with the set-up, a couple of hours a month is all
that is required to keep the bookkeeping under way; and a couple of half-days
at the end of any financial year, to produce the annual reports, should be all
that is required at that time.
With basic
computer literacy, access to a computer with preferably, an on-line connection,
and math's competence, no higher than GCSE level, John believes that benefits
are potentially available for a domestic situation with a shared annual income,
of around £20,000 and upwards. It will also be appropriate for accountants in
their work on behalf of domestic clients.
A sense of
personal responsibility towards the members of the domestic situation is
paramount.
The benefits
are that with the accumulation of a few months' worth of figures, a realization
of the actual spread and balance of the family outgoings will become apparent.
With this, decisions can be made on any changes required to the pattern of
financial activity, in order to obtain a better balance. The whole purpose is
to achieve an overall and improved sense of domestic well-being.
With the
new-found information, family members will know in detail about what has to be
done in order to achieve a better life-style. Accounting, in itself, will not
achieve this. Discipline will be required to change spending patterns to obtain
the desired changes. The new accounting system can help keep track of progress,
using budgets and targets. In this way, users will obtain early warnings of where
and when they are not keeping to target, so that concerted efforts can be
directed at coming back, on track.
This
authoritative book, written with rigor and thoroughness is being published by
Matador, Troubadour Publishing Ltd .
