Sunday 28 December 2008


This is me - on a fantastic trip to Antarctica a couple of years ago!

I have always believed that accounting was the only way to ever really get control of my own finances. I tried to do it using the only methods that I could find at the time; and the trouble was that the available methods were all based on business accounting.

It proved to be quite difficult and once I discovered how to do it, I found that it really didn't help too much! It all had the wrong focus. By this, I mean that business accounting was all about producing results (particularly the reports, graphs and ratios) to help business people maximise their profits to increase the business owners' value. That of course is quite understandable when you think that accounting has evolved over a very long time, essentially to meet the needs of businesses.

I decided I needed an accounting system with a new focus that matched the personal needs of a single person or a family situation so that their finances could be controlled.

I eventually came up with a solution which I describe as a new accounting model. As such, it defines a new set of reports, graphs and ratios, together with the sort of accounts needed to hold the necessary information to produce these reports and the methods required to make it all work together. The name of the new focus is 'Domestic Well-Being' and so the purpose of Domestic Well-Being (DWB) accounting is to enable people to maximise it, in contrast to maximising profits with business accounting.

It is not a software package but as a model, it is possible to set it up to run on off-the shelf personal accounting software packages that are available for running accounts on a home PC or laptop. Having set it all up, the overheads are the order of an hour and a half a month in order to do the bookkeeping (entering the transaction data) - trivial compared to the potential benefits available!

I am not going to say too much about the model in this first, introductory article but I should tell you that I wrote a book about my methods, called 'Accounting for a Better Life' and there is a web site at where you can find out more about this subject.

I will just say a little about what it might mean to manage or control personal finances to try to give you a feel for what it is that personal accounting might try to solve and how it might relate to maximising DWB.

If you think about financial activity in a personal or household setting, it is all about spending money to live, based on incomings (the increases) - from wages, salary, windfalls or whatever. Spending money on living results in decreases which have to be allocated to things such as food and drink, accomodation, furnishings, taxes, health, transportation, insurance, hobbies, social activities, vacation and maybe, even a few luxuries.

Our so-called worth or Domestic Wealth consists of our assets (house, car, cash, investments, etc.) less our liabilities or what we owe (mortgage, car loan, credit card balances, etc.) plus over any period, our increases less the decreases.

Managing and controlling our finances is essentially all about knowing about our domestic wealth to make sure that it is healthy - that we are living within our means, and that we can take care of all our financial responsibilities to both ourselves and our family. Many of these responsibilities concern payments now into some form of savings or investments to ensure that we can take care of future needs - education, improved living conditions, better holidays and most important of all, retirement. It is retirement which with increased longevity, will occupy an increasingly greater portion of our overall lifetime.

Since accounting is all about keeping track of assets, liabilities, income and expenses, it could be of enormous help if we could find a way to relate it to the characteristics of personal or household finances. That is what DWB is all about; it is a structure that characterises domestic wealth, particularly the increases and decreases, based on the pattern of day-to-day household financial activity.

With this, we will obtain the fantastic visibility on our affairs to be able to ensure that we can best balance our commitments in relation to our income, through prioritisation related to our personal ambitions and responsibility. Control implies decision making to make changes based on the current situation in order to achieve the desired results. DWB accounting will expose the current situation in a way to facilitate this decision making, on a continuing basis, so that the resulting effects can be monitored, compared and adjusted if necessary.

The implications for success are a sense of responsibility to oneself and the family situation, awareness that accounting in itself will not result in any improvements but that it can point the way to a better life and finally, that discipline will be needed to make the changes exposed by use of this new form of home and personal accounting.

Future articles will expand upon the ideas behind Domestic Well-Being accounting.