One Number I Trust: Plain-Text Accounting for a Multi-Currency Household

  1. Explain how you would do simple accounting with a database
  2. Point out which indices you'd create for performance
  3. Show how the "double entry" part of double entry accounting is about the indices

2. For performance, you would create indices based on the accounts in the transaction table, so you could easily check what's going on e.g. in your groceries account or how much you spent at the supermarket.

3. Double entry accounting was formalized in the 15th century, way before computers became a thing, but bound paper books were already somewhat affordable. The way you'd do accounting is like this: During the business day, you would write down your transactions as they happen, into a scrapbook, similar to the transactions table mentioned above. At the end of the day, you'd do the "double entry" part, which means you take your "index" books where each book is about one account and you transcribe each transaction from your scrap book into the two books of the two accounts that are mentioned in the transaction, e.g. if you spent $10 from your groceries account into the supermarket account, you'd double enter that transaction both into your "groceries" book and into your "supermarket" book. Then, when you want to check on how much you spent at the supermarket in a particular month, you could easily look it up in the supermarket book (this would be very tedious when using the scrap book). These account centered books are like the indices in the database mentioned above.

So the double entry part is about clever index building for making it easier and faster to understand what's going on in your accounting system.

To explain that, I'll rephrase, in my own words, the restaurant example from the article, because that was a good example of the concept. Let's say you went to a restaurant with two friends and decided to split the $90 bill three ways, but your friends didn't have $30 in cash on them at the time. You put the whole $90 on your credit card, and your friends paid you back $30 each the next week: one on Monday, and one on Wednesday.

In single-entry accounting you might have written the following transactions:

Thursday Jan 1st: $90 restaurant (credit card) Monday Jan 5th: $30 repaid from Alice (cash) Wednesday Jan 7th: $30 repaid from Bob (cash)

Thing is, there's nothing to link those transactions together. If you look at these entries three years later, you'll probably be left scratching your head as to why Alice paid you back $30: there's no $30 transaction, so the $90 restaurant transaction won't jump out at you as the reason why Alice paid you back.

But with double-entry bookkeeping, you'd write that as follows:

Thursday Jan 1st: -$90 restaurant (credit card) +$30 my share of the restaurant bill (expenses) +$30 Alice's share of the restaurant bill (money owed to me) +$30 Bob's share of the restaurant bill (money owed to me)

Monday Jan 5th: -$30 Alice's share of the restaurant bill (money owed to me) +$30 cash received (cash)

Wednesday Jan 7th: -$30 Bob's share of the restaurant bill (money owed to me) +$30 cash received (cash)

It's not always obvious when you're new to double-entry accounting which entries should be positive or negative, but if you remember the "must add to zero" rule you'll be more likely to get it right. Money flowing into an account is positive, money flowing out of an account is negative. For credit cards, the money flows "out of" your credit card and into the restaurant's ownership, so the sign should be negative. When you pay the credit card bill later, the sign will be positive on the credit card account (and negative on your checking account, thus again adding to zero) because money is flowing out of your checking account and into your credit card account.

Now, look at that double-entry accounting. When you look at the Wednesday Jan 5th entry, and you see that Alice paid you back $30, you'll start searching for a $30 transaction earlier, and you'll pretty quickly find the January 1st and figure out that she owed you $30 because you had paid her share of the restaurant bill on the 1st. And even if the amounts don't line up (let's say she paid you $20 on Jan 5th and $10 on Jan 12th), there's still a "money Alice owes me" category which has a +$30 entry on the 1st, then -$20 on the 5th and -$10 on the 12th, all of which makes it pretty easy to figure out what Alice is paying you back for.

So by recording each entry in at least two places (it's not always exactly two places, e.g. the January 1st expense is recorded in four places total), you get more linkage between the items and it becomes a lot easier to see why the money was going out or coming in.

It wasn't wrong of course, there is so much history, ingenuity and the invention of double entry accounting, but I just couldn't get my brain to understand it.

The way the concepts settled in my head was: double entry accounting is just an excellent way of modelling a graph with nodes and edges. Accounts are nodes, transfers are edges. Every edge has a source and a destination.

For a paper ledger, each column is graph node, and each row is a graph edge.

That was enough for me to be able to learn the rest of the things I needed for interacting with the accounting world.

But I also realised that that description really only helps a very small part of the population. :D It makes things so much worse for most people.

"Hey could you help me understanding this accounting thing?"

"Sure, but first thing is, let's learn graph theory! You know who Dijkstra right?"

Whole buckets of nope.

But thats a digression from your actual question - whats the point?

Because it presents a rigid set of rules of recording transfers, everything has to have a from account and to account, every row adds up to zero.

Because of that, it makes it easy to spot any mistakes in data entry. If any of your rows dont add up to zero - then you've made a mistake.

However, if you have more than one account or debts, or budgets, then it becomes useful to track both sides of a transaction. If you track both sides of a transaction then you can easily answer questions like: 1. how much money do I have in my investment account? 2. how much debt do I have? 3. how much did I spend on recreational social activities?

You can track debts and investments separately, but then you are still making two entries just in two places.

I think many people have few enough debts and investment account that they track these separately, and the third question, budgeting, can be simplified if each vendor is only ever considered for a single budget, for example, all your flights are part of your vacation budget, and you don't care to break out a flight to a career related conference.

I think the main advantage is that you can granularly keep track of the movement of money, stocks, commodities, etc., and their conversions. As a day-to-day example, it gives you the ability to follow, for example, invoices received (Liabilities or Accounts Payable), transactions on a bank account (Assets), and what you are going to spend (or at some point, have spent) (Expenses).

This separation allows you to, for example, enter an invoice you've received on January 1 in Accounts Payable, with a corresponding value in Expenses. At this moment, nothing happened yet, it's simply an administrative transfer of some amount from an asset account to an expenses account (the sum of these transfers must be zero, so one amount is negative whereas the other amount is positive. See [0] for more details).

As a result, this gives you insight in what still needs to be paid. Once a transaction for that invoice enters your bank account on, for example, January 10, it gets "paid" to Accounts Payable, thus giving you a link between an invoice, its payment, and finally the amount spent. (This concept also works the other way around, see this sibling comment[1], where it's also extended into working with multiple accounts.)

[0] https://beancount.github.io/docs/the_double_entry_counting_m...

[1] https://news.ycombinator.com/item?id=46464893

The only tools that were able to provide that were GnuCash and PTAs like beancount.

My point is, there is a big segment of people who are not served by existing personal finance tools simply because they operate in more than 1 currency, or have a slightly more complicated setup than envelope budgeting.

For anyone who wants to use this envelope method without paying for YNAB, I recommend checking out Buckets, which is another software that works similarly.

It's made budgeting a tool to accomplish savings, wealth growth, and expense smoothing rather than simply a survival strategy. When you have to deliberately shift funds out of one category to cover another, you really consider the relative priorities.

Other wise all non envelope budget systems are horrible for me because I want the budget to be self adjusting so if I spend more on household items 1 month it needs to ensure I have less to spend over the next set of periods till I’ve gone back into positive . Rollover basically

Author here. I tried various consumer budgeting apps before I ended up building my own (and then going to Beancount). The main problem with every one of the apps I tried is that they don't handle investments well. 99% of my money is invested and having net worth figures which are wildly wrong because the app is only tracking bank accounts really annoyed me. That was the reason I built my own thing in the first place.

> Was the time investment worth it to get the control and visibility you now have?

Absolutely yes. I think it helps me really understand where my money is going, how I can make it work harder etc. Even though the RE part of FIRE doesn't appeal to me, the FI part does and knowing where I stand at all times has been very motivating.

I ran a small business for a while, and I would draw a parallel to that. Once a family's finances hits the complexities of a small business, multiple assets, loans, cars, long term savings, investments, I'd say the granularity is worth it. I would certainly like to try it out.

For that type of "obfuscated" PDFs I've come across, it does well, it's just a lot slower to run than pdf2text.

Print the PDF to an image. Then use OCR. Then import the output from that instead.

I guess nowadays it's very cheap to run a headless browser, screenshot the output, and run it through OCR.. hah, to prevent that they'd have to design their webpage as 1 full screen Captcha..

Tracking expenses doesn't take more than 5-10 minutes per day, if you do it daily. With the correct workflow, it shouldn't take more than 30 minutes per month. There are even apps that would do that for you without any effort, though not so perfectly as fine tuned apps.

And now, the enlightenment part: how is expense tracking preventing you from making more money than visiting hecker news, reddit, social media, listening to the radio, watching TV, reading the news, or a million other things? Do you really spend all your waking hours earning more money so tracking expenses for a few minutes would make you make less?

Then you discover that you really do need to know how much you are spending on sandwiches.

For personal finance the problem is almost always very obvious ($3,000 on candles) and all the spreadsheets and budgets won’t change that.

If you transfer 50k from one account to another and want to check your networth before the money comes back in, summing your balances won't help you.

I think this is besides the point though, I suspect OP wants to track networth over time.

I honestly completely ignore my purchased home value. It is not a regular asset because you have to make use of it, you can’t really liquidate it without a substantial change in your life (renting, marrying, going homeless, etc). If you trade it, you’d have to use that money to get some other housing. My strategy in my personal finances is to threat the house as if I’m renting. The money is gone from the balance, the equity isn’t tracked anywhere.