>Household Finance, Part II: The Ledger

>When it comes time to balance your checkbook, do you cringe in fear? Does your heart fall into your lap when you pull a folded, crumpled wad of receipts out of your wallet or purse and realize ‘oh no, what do I do with all of this?’ In this second part of a two-part series on accounting and finance at the household level, I’ll explain both the old-fashioned and the newfangled ways of balancing your checking account, as well as the methods I use for hiding money within the ledger itself for a more transparent way to save and/or cushion your spending habits.

The old-fashioned way:

Type: paper
Difficulty level: 8

Materials required:
A checkbook ledger
One or two highlighter markers
An old-school ball-point pen
Every Saturday morning for the rest of your life

Nobody ever said that keeping a ledger was difficult, and the way that we’re traditionally supposed to do it really isn’t so hard (except for those who don’t like to do them.) However, I started the joint checking account with the mindset that I have to do it right or everything is going to tank and I’m going to end up having to fix it. With money. Here’s a page from my old ledger: click it to see the large version.


So, does this look difficult? It might; I admit that every receipt, bill, and transaction that went into this ledger added five minutes to the process. I had to check and re-check every calculation, but this was how I did it. I highlighted the deposits just for visibility, but that’s not the weird thing about this ledger, is it? Take a look at the bills entries and you’ll see where I put my own spin on the process. In Part I of this series I said that the Save for bills amount in the budget is subtracted from the available balance of the account, and this is how I did it. I needed a way to keep our spending (grocery) money separate from our saving (bill) money without using a separate account. This is also how I hid half of my bi-weekly paycheck in my personal ledger.

The first time, I just did a Bills/Bill money out entry, subtracted the bill money, and X’d out the posted column (where you check off when the transaction has posted.) The following week, I brought that money back in with a Bills/Bill money in entry, pay the bills from it, add the current week’s bill money, and then “bill out” the result. The trick to making it easier is in not putting receipts from spending money in between the bill money transactions, and highlighting the bill money transactions so you can easily find them. Here’s the step-by-step process I developed over the first month or so:

  1. enter the spending money receipts
  2. Add in the deposits
  3. “Bill in” the amount billed out the previous week (using the Bills/Bill in entry)
  4. Pay any bills
  5. Get your calculator ready
  6. Take your billed in amount, subtract the bills you just paid, and add in the amount you are saving for bills this week. The resulting number – which is hopefully a positive one – is the amount you “bill out” (using the Bills/Bill out entry.)

If the bill out amount is a negative number and you did everything right, then you should know why it’s negative and it shouldn’t be a problem – if you’re running a surplus, then you should have some cushion for that, and it will fix itself the following week. At least, that’s how it worked out for me the one time it happened in the past year. If you don’t have a surplus cushion, then call someone and tell them you have to pay your bill late, and don’t be afraid to admit that your budget went wonky; companies appreciate it when you let them know in advance that you can’t pay on time.

The newfangled way:

Type: spreadsheet
Difficulty level: 5

Materials required:
A computer
Microsoft Excel, OpenOffice Calc, or some other spreadsheet program
A few minutes here and there, maybe twenty minutes once or twice a month.

There’s a safe feeling to having your ledger on paper, until you realize that you’re holding on to an anachronism. For one thing, most – if not all – banks keep track of your account and give you online access to your transactions, statements, and everything else. This is how I would balance out the ledger. For another thing, if you have a computer and can use a spreadsheet, you can make a new kind of ledger that is much more flexible and accessible, and that is self-calculating. (Again, clicking the picture makes it easier to examine.)


 I should have mentioned in the previous post that when I make a spreadsheet that will eventually have more than twenty rows to it (like a yearly ledger) I freeze the sheet headers. To do this in Excel you highlight the row below where you want the split to be, go to the Window menu and click Freeze. Then, when you scroll down the sheet, the headers stay at the top. Don’t use the Split option; that will take care of itself. What you see in the new ledger looks a little more complex, but it’s really much more organized and simpler to use once you understand the layout. It’s laid out in three sections: Transactions, Allocations, and Balances.

This section should look like part of your ledger, literally. I began using spreadsheets for my ledgers just this past month, so it’s new. Since then, I’ve had to add columns for the date and posting status of transactions in this section, so my actual ledger template looks a little different now. It’s self-explanatory, and the amounts in this section are actual transaction amounts.

This is where all the action is. I’ve created three separate allocation accounts within the account itself using a single spreadsheet. Does that sound weird? It’s no different than partitioning your hard drive, really; these are virtual account partitions. I have, from left to right, the Available Balance (AB), the Bills Balance (BB), and the Savings Balance (SB). AB is for grocery money, BB is for bills (of course,) and SB is for the surplus and savings. Doing it this way has some advantages:

  • I can split up transactions in a single line, which cuts down on entries.
  • I can see all three balances at once – no need to search and interpret a paper ledger.
  • This method obsoletes the surplus breakdown box in the budget sheet – now we can see the changes on a transactional basis, and we don’t need to spend time figuring out where the surplus came from.
  • Technically, I’m no longer hiding money; now I’m allocating it.

The three columns in this section headed “XX Amount” are where I enter amounts for something. Most of the entries come out of the grocery money (AB), because they’re for groceries. Nothing comes out of SB because we’re saving it. The bills make it interesting, though. I mentioned in the last post that I over-allocate for bills by taking what I expect it to be and rounding it up to the nearest dollar (or some reasonable amount, like the next nearest five dollars for the water bill.) This means I have saved more money than I’m going to spend on bills, and of course I put the extra bits into SB. So where bills are paid, as you can see, I withdraw the entire allocation for that bill from the BB and credit the extra into SB in a single line. Likewise, when I add in budget contribution deposits, I split them into all three balances accordingly (note the last entry.)

 The three balance columns in this section are calculated with formulas. It’s a simple =X15-W16 type of formula that takes the previous balance and subtracts the amount I’ve entered on the current line. I fill down these three columns (highlight some cells, including the last one with the formula in it; Edit/Fill/Down) as the sheet progresses.

The last section of the ledger contains balances, and should never have to be touched once it’s set up. This section serves two functions:

  1. It allows me to see the account balance as it will appear on my bank’s web site, and
  2. It allows me to visually verify the amount of the transaction without having to check and re-check on a calculator.

Both columns are formulated and filled down as the sheet progresses. The Amount column is the sum of the three XX Amount columns that are hand-filled in the Allocations section with a formula that looks like =G50+J50+M50 at line 50. This column’s sole purpose is to provide verification that the amount I’ve allocated is the actual amount of the transaction (which I would have hand-filled in the Transactions section.) If I visually compare the two amount columns, this prevents me from making accounting mistakes. The Gross Balance column, on the other hand, is the sum of the three balance columns in the Allocations section with a formula that looks like =H50+K50+N50 at line 50. This line reflects the account’s actual balance.

The spreadsheet ledger has proven to save me time and effort, while allowing me a better way to allocate our money and track the balances of those allocations. All in all, I like it much better than keeping the paper ledger, plus making corrections aren’t a headache. The use of a spreadsheet also makes the budget and ledgers accessible; I synchronize those sheets with an online storage account so that I can access them anywhere, including on my iPad and my Android phone. When Karisa texts me to ask how much we have left for groceries, I can check it and give her an exact amount. Plus, I can enter receipts on the go without having to keep the checkbooks with us, which will make our trip to Detroit this Summer much easier to manage.

If you have any questions or comments, feel free to do so by adding a comment. Thanks for reading!

One comment

  1. I remember when I made the switch from Blogger to WordPress with my then-blog That Last Thing. WordPress seems really pretty and whatnot from the beginning but for some reason it didn’t really click for me so I switched back. I think Blogger is better at customization, HTML in posts, and it’s set up with my Gmail so for me it made sense.

    But as long as you post links to your post on Twitter (or is there a way to add Google Connect on here) I’ll keep ok readin’!

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