Title:

(R)Evolution In Home & Personal Accounting

Word Count:
1559

Summary:
'Accounting for a Better Life� is a book in which John Passmore 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...

Keywords:
home accounting, personal accounting, domestic accounting, debt management,
financial control,

Article Body:
'Accounting for a Better Life� is a book in which John Passmore 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 Passmore 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 Passmore 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 Passmore 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 maths 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
to be done in order to achieve a better life-style.
achieve this. Discipline will be required to change
desired changes. The new accounting system can help
budgets and targets. In this way, users will obtain
know in detail about what has
Accounting, in itself, will not
spending patterns to obtain the
keep track of progress, using
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, Troubador Publishing Ltd (http://www.troubador.co.uk) and further
information can be found on the author's web site at http://www.dwba.co.uk

copyright � 2006 John Passmore