The Surprising Ease of Plain Text Accounting
vincecima.com
vincecima.com
1. I had kept personal accounts for a while, until I realized my expenses swayed month-to-month, but within a narrow band (+- 10%). This made the "insights" less interesting and approximations worked well enough for my use case. I suspect that this is so, for most people.
For who have not kept personal accounts, what I am describing is similar to when you got your Fitbit - The first 2-3 weeks are full of glorious insights and a month goes by and you do not really need a fitbit to tell you how many steps you walked. Approximation approaches real count. Same for personal ledgers.
2. I now focus my efforts on income expansion rather than cost control. Some of you may say, recording costs is not controlling it. In that case, I find accounting, even less useful (once I have arrived at approximate cash outflow). Income expansion, puts me in a different frame, which I find strangely empowering. Even more so than the satisfaction that comes from having controlled costs.
Now that I'm consistent with budgeting (YNAB), I'm confident I'm saving for the future AND for things like birthdays, xmas, charity, cycling, etc and spend more on those things. It's like a contract with myself.
I totally agree with a corollary you're implying to "you can't change what you don't track":
- "It's meaningless to track something that doesn't change"
I can see a future where I stop tracking incidental or recurring, automatic bills and just focus on those other things.
The biggest thing it has helped us with is accounting for regular but infrequent expenses, with respect to having reasonable expectations for the limits on our regular and frequent expenses.
Before, if we had a month where our bi-annual car insurance bill coincided with our quarterly pest control bill and a higher-than-normal utility bill (say a hotter or colder month than usual), then we would have a very thin month and need to really cut back on discretionary stuff.
Now, YNAB makes it super easy to set money aside each month for those infrequent expenses, such that there is always a just-the-right-size pot of money sitting there when the bill comes up. Now, for example, we never have to change our grocery buying routine in response to other expenses, as those other expenses are accounted for a piece at a time every month.
Even utilities, I average the last 12 months of utility bills, and set that amount aside every month. When we have a low bill, that pot grows, and when we have a high bill, that pot shrinks, but no other spending or saving is affected by those fluctuations. It's great.
I'm tempted to move to something like ledger/hledger or some other plain-text accounting tool when YNAB 4 goes out of support, but the thing I'm not sure how to implement in those systems is YNAB's categories, the "virtual envelopes". Does anyone have a better idea than this? https://gist.github.com/simonmichael/a1addcb652da4e78b183
I see myself in a similar situation, but in my case the thought is "I don't really ever worry about money any more", which is different. That large buffer cash can be invested, or (if it's significantly large to your interest) - hedged, at least. That requires thought.
With all that automated, and my savings levels being very aggressive, I just need to make sure the buffer in my checking account doesn't go down each month. If it gets a little lower then maybe I skip a few meals out for a month.
But I will say, to get to this point took many years of trying to budget and "failing". Using those tools helped by letting me internalize my spending and re-baselining what "normal" spending felt like. I put "failing" in quotes because each time I went over budget or stopped tracking for a few months I felt like I had failed but in reality I was learning what worked for me.
Accounting is supposed to be a practice that contributes to your financial discipline, among others. Is financial discipline extraneous to you?
People without major financial goals (or whose financial goals are predictable to be automated away in the case of the grandparent post's retirement) are free to run a surplus and do away with discipline as long as their behavior is regular.
Similarly, I found it a huge improvement in my life to track every calorie I ate for 3 weeks or so. Now I have a much better understanding of my food. While I thought I understood where my calories were coming from, it turns out I really didn't.
After a month, I no long found calorie tracking not useful, I knew at the end of each day approximately how many I had eaten, without explicit tracking.
What I found was that I might know certain things that I eat often, but anything even a little new ended up being badly estimated. If I want to continue losing weight, I need to track.
And my estimates went both ways, too. I discovered this one day when I was crazy hungry, and it turned out I'd massively under-eaten that day (or the day before? I forget), which can be as bad for dieting as over-eating thanks to the lowered metabolism and then compensatory over-eating that eventually happens.
At the end of every month, you have a precise measure of your expenses estimation error. Just take a look, if it's too far from the expected, look for the reason and recalibrate your counting. But there's just no way you can do this with calories.
I don't think yours is a proper analogy for the parents ...
In your case, the analog to income expansion would be exercise and "banked exercise" in the form of muscle added that has a baseline caloric upkeep just to keep it around.
I have no idea if that analogy works ... it's more complicated than his simple income behaviors ... this is just to say that your analogy is probably not a great one.
This becomes all the more important when the real rate of inflation is in double digits. (Sounds unbelievable, it's not in certain economies.)
Unfortunately, the recurring expenses do not form even half of the total expenses. While it might not seem worthwhile to keep personal accounts, a cumulative view of the spends over an entire year does present useful insights.
Businesses need accounting. Humans need nurturing and growth. Don't nurture your business and account for yourself. Account for the business and nurture yourself. Your business can't love you back.
I was serious enough once about personal accounting that I built my own web app because I thought the standard double-entry system wasn't really suited to the task. After I got the basic system tweaked to my satisfaction, I used it for several months.
I started to take it to the next level, but had the curious realization that I cared more for the process of developing the app than I did for actually tracking my finances. Eventually I gave it up, and went out and got a better job where I'm more fulfilled professionally and way better paid. I learned then that working on the app was substituting for professional fulfillment and vowed never to let that happen again.
Tracking cash inflows and outflows is an essential business skill. But a business is a machine, and people are not. Personal productivity does not respond well to wringing unit economics out of daily activities. If your goal is to turn yourself into a machine, by all means use a mechanistic approach. But we are meant to build machines, not to be them.
What you're missing is that at that level, what you can get through spending money is going to be vastly dwarfed by what you can get through ingenuity. My response to a bigger electric bill in the winter wasn't to save money on food, it was to shut my heat off, build an enclosure around my desk and heat it with a small space heater.
Best of luck.
Perhaps it's not the popular opinion, but in a lot of cases I agree with you. Watching over every penny meticulously can become a much too consuming habit that produces little net positive result. It's easy (at least for me) to get caught up in trying to never waste money, and it's really not worth it.
- Some kind of perfectionistic NIH accounting system is probably not what people have in mind when they talk about this personal finance accounting being useful
- The project details seemed to overcome the initial scope
- Rather than addressing the need for a more elegant framework for personal accounting, OP decided to just make more money, and for all we know has discarded personal financial accounting
- We know not what kind of blind spots this may have created (for real: You are absolutely discarding a level of granularity and the freedom to find a way to make use of it)
- While we can trust that OP will probably be fine, we are left to wonder if it's really so great to tell people not to do this kind of accounting when you kind of turned it into a hyperbolic mess when you implemented it yourself.
It was good enough for my purposes. But I kept running into situations that called for extended customization. Sure I could have extended the app to account for temporary changes in how I wanted to do things. But it just kinda stopped making sense after awhile. It made me look into how I managed my finances before I ever did accounting more closely.
What I found was that I never really got into the sort of mindless spending habits that kill most people. Accounting was, in essence, a unnecessary addition to an app that was already working just fine. It didn't buy me much when I was doing it, and I didn't miss it when it went away. My life just isn't that complicated.
Similarly, I've never needed productivity software other than, on very rare occasions when I'm super busy, a pad of paper and a pen. And I was a GTD zealot 8 years ago.
My advice in my original comment was tailored towards people who plan on being upwardly mobile. If that's what you want to do, then personal finance is a waste of time. Ramit Sethi's advice is the best, chase big wins, automate your finances, and don't stress out over small repeated expenses.
If you've hit a career plateau and don't see yourself making more money anytime soon, then by all means make the most of what you have. But c'mon, this is Hacker News. We can all be upwardly mobile here if we want to be.
For most people earning more is not feasible, at least not while having some personal live, family matters and depends also on their education, upbringing and people they know.
Some people work a fuckton of hours for a measly pay, and so they can't get to earn more, because they have no time to improve themselves or even to go to interviews.
For these kind of people, that is the majority, some time of personal accounting will be easy and will bear lots of fruits, while they wouldn't be able to improve their jobs in the near future.
He's saying it's better to work on things that will lead to one earning more money, rather spending time monitoring how much one is spending. The first leads to an improved state, the second is just for ensuring one's state does not worsen. With one your increasing your 'cap', with the other you're just maximizing given a 'cap' (cap meaning the amount of money you can work with).
Though, to be fair, I think they should do both. Budgeting/finance is an incredibly important skill for all but the richest levels of society.
This is why those who are making 15$/hour don't want the minimum wage to go to 15$/hour - even if they think they'll get a small bump to compensate.
Further, there's no reason you can't do both. I don't account for my personal finances in any way, but I don't spend a lot on silly things. I do however use an app (http://streaksapp.com) to push me. Without that, I'd be more inclined to take the easier or lazier options. We can account for our time and progress even if we don't do it for finances.
I do keep a budget and keep track of things.
You seem to think keeping a budget is some onerous, never ending task. In reality, probably spending about half an hour per paycheck is fine, once you have a system in place.
And it certainly does not require a ton of technology, either. People budgeted just fine long before personal computers (lookup "envelope budgeting").
You are conflating two unrelated things. Spending a lot of time writing a budget app may have been a mistake. But you don't have to write your own app in order to budget.
Level 1: next 30 days. I have a couple dozen recurring transactions, generated 90 days out. If, based on the current balance plus expenses 30 days out, my checking account is projected to go negative, I do something about it. Otherwise, I think about shifting some money into higher interest savings, since I don't need it in checking. And if savings exceeds my emergency fund definition, additional Roth IRA contributions may be in order. The end result is that reducing float in checking can end up with a pretty high return. Frequency: Once a month.
Level 2: Annual Budget. At a high level, I use a simple spreadsheet to budget all income for the year into savings and expenses. It's complexity has grown over the past six years to calculate things like income taxes, so I can compare job offers in other locations and states. I also use it to verify my very high retirement savings rates are viable. Because more savings contributions -> less taxes -> more contributions etc., a spreadsheet lets me "solve" for maximal savings. It also lets me target expensive areas, like rent, or dropping cable, phone plans, etc. Frequency: Once a year.
Overspending is very easy for the average person. I know someone making 80,000/yr who has basically no assets and are living paycheck to paycheck and always complaining how poor she is. If you are living paycheck to paycheck on $50k you tend to live paycheck to paycheck on $100k. Adding additional income does not help these people - also see The Two Income Trap.
Finding out where your money is going is good for everyone. Budgeting (even if informality) is good for everyone. Finding out where your money really goes is really eye opening for many. Realizing that a reduction in income probably requires a reduction in spending/lifestyle. Realizing you aren't "entitled" to the things you want by virtue of birth, you have to have the money to afford them. This may seem obvious to some but in the world of advertising and media it isn't to many.
The criticism of personal finance or "frugality" here and in general comes in where people become obsessed with not spending money in the long term+. When every choice is optimized for spending less and one cannot enjoy anything with becoming guilty they are spending money. They put too much effort into pinching every penny and lose sight of the bigger picture. It's easy to hate on these people. This group is the loudest, unfortunately.
Personal finance should be all about optimizing money for maximum enjoyment and financial stability. Realizing money is a scarce resource and optimizing it, which can include working on obtaining more depending on your situation. Budgeting in for the things you enjoy, within your means, and saying "no" to more things that won't bring you long term happiness. Realizing the difference between needs and wants. It's trivial to do this for many, and it is natural, but difficult for many as well. I think personal finance is just as much psychology as it is math.
+ Being obsessed with not spending money (OK, not obsessed but making it a priority) can be good in the short term for several month in some cases. Examples are taking a break from consumption or working to pay off high interest debt. Of course one should consider all their options in this situation - including, say, adding additional income short term if possible.
I was speaking specifically for that audience and not for the broader one. Of course my way of dealing with money only works for people like me. I refer specifically to the "upwardly mobile", which is generally taken to mean those who make more than the average and are still capable of climbing the social ladder.
When you are climbing the social ladder, you develop skills that make you more useful to people. When you learn accounting, you are learning a skill that will keep you from shooting yourself in the foot financially. It will not make you much more useful to others except in that regard. Sure you can get a job accounting, or use it to help run a business, but the benefits are too limited to justify doing it yourself. Hire somebody and use the time saved to learn something more useful.
I never intended to say that people should not have a handle on their spending. Accounting / budgeting is one mindset that will give you such a handle but not the only one.
Tracking personal finance doesn't have to be terribly difficult. A simple spreadsheet with expenses and income often suffices. Maybe some simple divisions so that you know that x % of the paycheck will pay the mortgage and y % will be used for the insurance. Nothing too fancy or time consuming. Just enough to reveal patterns, and make sure you have enough "flex" in your bank account for things like personal emergencies.
Although I know you are saying your advice is for the upwardly mobile only, my impression is that a lot of people are very bad with their finances -- that includes even some of the "upwardly mobile". Maybe you're good with your personal finance and have no need to track, but I personally think the general rule should be that most people should do some rudimentary tracking.
I think the main issue is having other mouths depend on you. I react favorably to his position because my personal finance strategy is having soft/fuzzy (as in "fuzzy set") targets, never spend more than I earn and set automatic transfers to a retirement account that look like expenses when I see the bottom number on my bank statement. But I see how that balance becomes disconnected from one's resolve and voluntary actions as your finances begin representing an entire (even if small) community.
> Overspending is very easy for the average person.
This is what I don't wholly get: doesn't the average person read the bottom number on their bank statement?
I mean, cutting back on expenses is painful, but it's not a matter of tracking pennies anymore. If you have a negative balance you're spending too much money, and most of your choices regarding that are personal to the point of being existential -- what should I sacrifice, my yoga classes or my kid's GameNetwork subscription?
Teenagers take summer jobs to earn extra pocket money. Housewives run home-based businesses on eBay / Amazon / Etsy to supplement the household income. People with full time jobs work part-time jobs before or after their main gig. Some people buy property and get rental income out of it. Those who are an authority on a given subject write books and earn royalty on book sales. The ultra-wealthy get dividend income from their stock market investments. None of these people belong in the HN bubble.
Read any number of HN discussions on side-projects and you will see a wealth of ideas being put into action:
https://hn.algolia.com/?query=sideprojects&sort=byPopularity...
@vinceguidry is right. Invest in yourself and enjoy the payback in increased income.
I was young once, too. We all were. It's fucking amazing, isn't it?
enjoy it while it lasts. But do know that your salary increases will almost certainly slow as you mature into your field.
Things like that.
Also this: http://www.esquire.com/lifestyle/money/a44086/four-men-four-...
Note that the higher the income, the tighter control of their finances the person has. At least in that story.
But fundamentally you have to do both: know how you spend and make more
No. Emotions are the key to all of the previous things, either mastering them or expressing them. That's where one should focus their efforts.
Accounting keeps me in check so I can use my money in ways that make more money instead of fritting it away.
In my estimation, cutting that $50-60 a day that I spend on eating out and such isn't really worth it. Dropping my $300 a month car payment for a new car isn't worth it. What is worth cutting out is the hundreds I can sometimes blow on things like unnecessary clothes or electronics purchases. These things add nothing to my life, I usually use them once and forget them.
Spending freely on eating out and buying drinks for my friends and pretty girls at the bar brings way more value to my life. And, paradoxically, it can be a more stable expense. Expensive restaurants just aren't as good as my favorite ethnic spots. My local haunt has cheap drinks and a more fun clientele than the high-falutin spots downtown.
There's a point of diminishing returns on everything you can possibly spend money on. Most of us blow way past that point without even thinking. But if you keep this point in mind, then you can get phenomenal bang-for-your-buck in places that nobody could ever think would be affordable. I took two two-month long trips to Colombia staying in hostels for not a whole lot.
Budgeting doesn't teach you this mindset.
But accounting taught me this mindset. It helped me realize that I don't value some things as much as they cost. So I don't do them.
¯\_(ツ)_/¯
First you say you don't believe in accounting, then a few posts down you decide to suddenly do some accounting. I'm confused.
If I went from $100K to $300K, my personal spending would go up, but not dramatically. I've already found points of diminishing returns for most of the things in my life that I've found that's worth spending money on. I'm sure I could find ways to spend it, but the sort of mindless spending on stupid crap that most people do, I seem to be immune to it.
I have a much smaller surplus, and of course you're welcome to argue that I should be behaving differently in order to increase it.
But really, spending an hour a week doing my finances (I use YNAB) does not affect my earning potential in any significant way. I don't think it makes any sense to argue that I should stop doing it, and spend that time trying to get a better job. I can do both! That time spent gives me the reassurance I need that I can carry on paying my mortgage, feeding and clothing my family and taking them on holiday, and also that I can very probably meet any unexpected expenses that arise. This is a great feeling, well worth an hour a week of my time.
My solution? My regular expenses are significantly smaller than my income, which lets me basically ignore my personal finances. (This does not mean I do not consider whether a gadget is worth the price. I just typically do not need to think whether I can afford it or not) How do I do that? By making relevant choices in the biggest expense classes, i.e. housing and car. My accommodation and car choices are _well_ below my typical peer standards. Easy? Depends on your character. Personally I enjoy the freedom and control I have on my own life much more than I dislike the laughs[1] I get from my old friends when I pop up into meeting them with a crappy old bicycle.
[1] Obviously this is much easier when both I and my friends know that I could "afford"[2] to buy a similar car than they, I just have chosen not to.
[2]In the normal sense of being able to finance it. My personal definition for affording something is that I do not have to care financially whether the purchase gets stolen the following day or not
Unless I am completely mistaken about what either of those terms mean.
Your approach follows amdahl's law by the way. Optimize for big wins instead of doing micro optimizations. Accounting is how you know which are which.
How do you know this? By what method do you account for your spending?
> when I pop up into meeting them with a crappy old bicycle.
How much do you spend on repairing your bike (either time or cash)? Does that work out as being more cost effective than buying a new bike / taking the bus / etc?
If only there were a simple way to keep track of spending to see if it really were cost effective...
When I check my bank account, there typically is more money than before.
> Does that work out as being more cost effective than buying a new bike
I don't know and I don't care. I don't claim that I don't do _any_ budgeting/planning/accounting/whatever, I just try to minimize the mental effort needed for that. Obviously one effect is that my consumption bucket is not economically optimal. I have no clue, nor interest to find out, how expensive these choices are for me. For some people it is worth putting money to luxury items. For me it is a luxury that I can afford not to worry how optimized my consumption is.
(One more thing. I do have above average salary in my country. Obviously that makes things a bit easier.)
Most of us here can easily say the same thing. Most of us could also say that we are above average intelligence and we, too, could just as easily have a sense of our finances. However, we choose to keep track of everything a little more accurately than that.
Precisely. And there is nothing wrong with that. I just have made a different choice based on my preferences, and I see nothing wrong with that, either.
Really? Repulsive?
> [1] Obviously this is much easier when both I and my friends know that I could "afford"[2] to buy a similar car than they, I just have chosen not to.
So, you ... care ... what people think of you.
Sorry, I am not a native English speaker, so there may be some connotation with the word repulsive that I am not aware of. What I tried to say is that I dislike very much planning, budgeting and figuring out exactly where and how much I have spent money.
> So, you ... care ... what people think of you.
But of course. Did I imply something else somewhere?
Not so great argument I guess. Someone is making 50-100K/month because he managed well his personal finances and saved money to invest to his next venture.
And if they make 100k a month by "saving up for their venture", their time would be vastly better spent actually executing on that venture rather than doing fastidious accounting on pennies at home.
I'm at a good point in my career, whilst not impossible, I doubt there's a lot of growth without changing my lifestyle in a way that I believe would be for the worse.
Yet I definitely feel that accounting might be useful. Not to save money in order to make money (this whole notion actually makes me uncomfortable), but to optimize my spending.
I find myself buying too much crap (around $100 in McDonalds a month, etc...)
I'm also considering putting a few thousands dollars aside in a saving account. It won't be more than 2 months of living expenses.
Mmh... Actually thinking about it, I think that I've been doing accounting for a very long time without naming it - and realizing it. For example, I have rules to manage my personal operating capital, and I can tell precisely at which income level and how I will start to work on growing my cash reserves.
My advice would be:
-Invest everything while you are netting less than 10k a month, and be hungry to expand as if the devil was after you. The younger you are, the more aggressive you have to be. If you are under 30, don't even think of taking vacations.
- at the 10k point, you need to mind your expenses, and build cash reserves because investments to reach the next level will require down payments. At the same time, you need to keep growing your revenue at a faster pace.
-When you reach the next stage, your finances have reached a point where no anonymous from the internet can help you.
Don't waste all your youth on work.
As time goes on hopefully you have built up a unique arsenal of skills, knowledge, and connections. BUT please enjoy this process because it's your life...
One more thing is that the reason I say "30" is that I believe that you owe time to your wife and kids and while I think it is important to take the opportunity which is youth, I also think it is not good to be obsessed by making it big all your life. There's a time to try hard, and a time to try moderately.
And finally, I regularly do nothing for 2-5 days, sometimes up to 10-12 and just take some fresh air when I think I need some rest and wouldn't be productive enough in front of my screen.
So it is actually much more balanced than it seems - and perhaps than what I communicated. The bottom line of this balance is : take the hit now.
I love free time and recreation more than all those who told me that I worked too much, this is what they never understood. And this is why I prefered to take the hit a few months to free myself for the rest of my life.
I must say, you have a rather odd idea of what a "vacation" means.
Why would anyone do that? It sounds awful.
Its possible to take a euro style vacation, but extremely rare. Also your friends and family will tear into you, lobsters in a bucket style grabbing one trying to escape, unless you do the selfies at the tourist trap thing. "What you relaxed and had fun instead of stood in line for three hours to take a low quality picture? You totally wasted that once in a lifetime vacation."
I cannot understand for the life of me what you are talking about with friends and family. Basically hardly anybody cares about your vacation to begin with and nobody cares what you do and if anyone does why do you care? I mean, you don't have to tell your friends and family you are going on vacation if you believe they won't approve, your vacations aren't public information. I, personally, don't tell my mother when I go on vacation because she wants a play by play when I get home and I simply don't care to tell her how I spent every minute, so I just don't mention to her that I am going somewhere.
This is just an extremely bizarre comment.
What a weird problem to have. Are you sure that's actually a thing that happens? It sounds unlikely.
Terrible advice.
I am assuming you have a job, but this should work if not.
Put aside every lunch hour and scan the want ads and job sites for positions that match your skill sets. Don't go for things clearly you don't match - but stretch a little too.
Apply for them all. Make sure it is easy to send from your phone. Reduce the friction.
Call the agent / hiring manager. Make sure they know you exist and what your special skills / unique selling point is.
Keep pushing.
Once you get a new job, repeat till you are at 100k
its very simple - but you need to do it.
Extra hints: recognise you (as an HNer) have some valuable skills and need to fight the imposter syndrome. Start to collate the knowledge you have, in scripts, example apps etc.
You could have equally progressed by using an accounting tool all the way through.
There seem to be a common misconception here that when someone is using an accounting tool, he is hoarding by default focusing on growing his income by spending cuts. We all know that spending less can help you so much when your income is rather low :-)
What I believe I have is insight into my own life enough to be able to subconsciously manage my financial life. Is that accounting? I guess if you want to play semantic games then sure.
However if your expenses rise, e.g. you buy a house, have kids, etc. you might find you need to put a bit more effort into making sure your income covers it all.
I know my financial position. For me when I was single, energy spent on personal finance was energy lost for other causes, like earning a lot more money for example, or doing something socially relevant or building a laser cutter.
But my signifciant other? Living hand to mouth on a tight income, and not mentally prepared to even think about budgeting.
So now as a couple, needing to nudge her into basic budgeting, it better be with as little friction as possible...
Something low tech that really helps with that by the way is day-by-day budgeting. Estimate your annual net income minus your fixed costs: mortgage, rent, utilities, insurance, savings, investment, ... Divide this disposable income by day/week/month/quarter/semester/year. You now have one number per timeframe not to exceed. Discuss everything exceeding this limit, and build sensible rules from that.
On one's path through upward mobility, if you spend all your money before you get to your goal, that might prevent you from reaching it. Even for people with high salaries, they need to control their spending. For some that might be a spreadsheet or an accounting app, for others they might be fine at managing it all in their head.
So I kind of agree with the parent comment. Spend time on what you're passionate about and but not (much) on optimizing things of secondary importance - just do the necessary so that they don't take over your life.
That said, hopefully after the schlep I can go back to the state you describe, plus have much more freedom in how I spend my time than if I was working a full time job.
Your bubble mentality will serve you well until it doesn't.
I started to work and barely got by. Now I earn double of that and just have a few bucks to save every month.
Many people are not going to make big progress towards their longer term financial goals (getting out of debt, buying house, putting kids through college) without sitting down and creating a budget. "You can't change what you don't measure."
So... This month - being the start of the financial new year, I started collecting all my receipts. Then I installed GnuCash and setup their basic chart of accounts. Everything started at a zero balance.
So then I started to really get how double entry book keeping. I suddenly realised the balancing equation made sense:
Assets = Liabilities + Equity
1. I worked out all my current assets' balances. This included cash accounts, bank savings accounts and cheque accounts. I took the closing balances from 30 June and debited them to each of the accounts. To balance out the equation I credited the equity account called "Opening balances".
2. I then looked at all my fixed assets - cars, house, etc. - and debited the purchased amount of the asset to the relevant fixed asset accounts, then for each transaction I credited the opening balance equity accounts to balance the transactions.
So now my assets side of the equation equalled my equity side of the equation.
3. Then I took all my liabilities and did similar transactions, only in reverse. So I took my home loan and credited the balance from 30 June, then debited the same amount to the opening balance equity account.
So now my assets value is the same as my liabilities plus my equity.
4. So then I took all my reciepts and debited the appropriate accounts, and credited the appropriate current asset account or debited the appropriate current liability account (e.g. Credit card).
5. I take my income and then credit it to my income accounts, and debit the corresponding current asset accounts.
6. I take any loan repayments and credit the current asset accounts, and debit the loan accounts (liabilities) by equal amounts.
So now the equation is:
Assets = Liabilities + Equity + Income - Expenses
The new is much more exciting than bean counting the current, but you still have to maintain the current. Just like how refactoring, testing, and debugging code are just as important as writing new code.
When I picked up YNAB, I was already making 90k or so. At the end of every month it was tough to make rent, and we would live on rice and beans for a week. We lived in fear of the day that a larger or annual bill would show up. Health insurance? Panic. Tax bill? Drink and panic. Emergency needing some real cash on hand? Don't even think about it.
A budget lets you save in advance for those sudden shock bills. Now I don't even notice when the insurance bill comes due; I've been gradually putting aside money for it all year. What's more, we can afford way more important stuff. We were able to self fund two successful companies, we take extravagant vacations, and our quality of life is much better, just because we now set money aside in advance. And fwiw, those two companies more than doubled our income.
It's important to work on increasing your income through an improved skill set,better jobs, etc. But you can reap multiples of every dollar, and even new income sources, just by taking control of your expenses.
That being said I really don't think budgeting will have the same effect... But my motto is "whatever works". Furthermore you're not advocating against improving oneself but saying that you should do that AND budget.
So I'll try that for the second half and 2016 and for 2017 and keep you posted at the end of 2016 and at the end of 2017.
- I agree with what I think your main statement is, and will put it into an alternative argument, so others here can understand.
There is a statement "a penny saved is a penny earned." This is true. But if you're spending a penny the most you can save is a penny: if you're trying to earn more, you can earn a penny, nickel, dime, quarter, or dollar. The most you can move up in lifestyle by living "frugally" is whatever you're saving. But if you put that same effort into earning more you can have a better quality of life more easily.
To put it into concrete terms: if you have someone who nets $1200 per month and are living within the budget that gives you, then the most that they can possibly "save" is up to $1200 per month. It is mathematically impossible to shave more than that off of your current spending, because by definition there is no more than that. So the theoretical maximum that you can possibly 'save' or reduce your spending by $1200/month. Try to reduce your rent, your food, your transportation, whatever, to fit within your $7/hour budget and you will spend a lot of time with very little to show for it, because the most that you can possibly show for it is... $7/hour. That's a theoretical ceiling on savings.
But by focusing on increasing your earnings, there is no wall. So through all of the work in the world, you have a theoretical maximum that you could save of 1200/month - however it's fair to say that by moving to $2400/month everything in your old lifestyle was "free", and you can now buy new things, or a few better things. It's the same as if you saved 100% of all of your former costs, without doing any shopping around or anything else to actively save - it's as if those costs magically dropped to $0 - you can buy them all, and still have $1200 left. And all by focusing on your earnings and ignoring all that savings stuff.
So what's easier, shopping around until you've shaved some percentage of your $1200 spending -- or moving from $1200 to $2400 in net wages?
The latter is considerably easier than the former. I would say it's not possible to do the former, you can just approach it. Through hard work "saving" you could shave off let's say 40% or even 50% -- it's still easier to move up in wages by the same amount instead.
EDIT: I got downvoted. Are people getting what I'm saying? Someone making $1200 (which is 14.4K/year) can never save more than 1200, even if they are so good at it that they're able to reduce their spending by 80%. The most that they can save even in theory is $1200. But they could have the same net effect by working on increasing their wage. There is no ceiling on the latter. It's far (far!!!) easier to move from $1200 to $2400 in earnings, than trying to save 80% off of your spend @ $1200. And even though it's easier, it has a bigger effect.
Let's put this into concrete terms: if you're a barrista making $10/hour in Silicon Valley, you are having a hard time making ends meet. You can try to absolutely cut out all of your costs, rent, transportation, food, etc, and you will still have a hard time. Or you can put the same effort into learning to design, putting a small portfolio together, and trying to get hired as a designer. While completely ignoring trying to save on those costs, and instead just, say, deferring some of your demand. It's easier to make money than to save money, other than possibly the easiest optimizations. (such as making sure that you're not drastically overpaying for anything by 3x or 5x). And it has a bigger impact on your life.
Instead of it being a decision of trying to save an increasing percent of $1200 or doubling to $2400, it's me trying to save an increasing percent of my current $1200 so that extra $1200 will go even farther later.
So let's look at the comment I replied to. He ignored your advice/approach and instead did things my way: as a result he moved from $30K salary to over $100K in five years.
That doesn't happen without considerable investment of time and energy.
Based on the fact that you are religiously inputting every transaction at point of sale, into a mobile app, and based on your being a HN reader, I will go ahead and make the prediction that you are able to earn within the top 10% of wage-earners in your city. My prediction is that instead of doing so, you are working equally hard to earn less than 50% of that amount. Go ahead and look up statistics and get back to me about whether I'm correct.
In other words, I am actively predicting that you are close to or even below the medium earner in your city, rather than in the top 10% as you have the ability to do so.
You don't have to tell me what city you are living in or what your earnings are, but I would appreciate if you told me whether I was correct.
By the way I can't visit your site, because your SSL cert is out of date and chrome won't let me visit it.
In the time you spent saving or stretching your rent, or inputing your groceries at the point of sale, you could have fixed that and been hired by someone who instead chose to pass on you since you can't even run your own web server.
It's a zero-sum game: either you are spending 30 seconds to a minute inputing expenses into your mobile app and using 'shoe leather' to walk around from store to store and evaluate your options so that you can shave a few pennies, or you are getting home a few minutes earlier and fixing your SSL cert and sending out another five resumes. It's one or the other.
I'd love to know whether my prediction about your wage is correct.
>The certificate expired on Tuesday, June 07, 2016 1:59 AM. The current time is Tuesday, July 19, 2016 5:50 PM.
That said, I would gain as much time by parking closer to the entrance of the store as I would by not putting in transactions. It really is negligible time spent at this point. The largest time sink is the one night/month to reconcile all accounts and allocate for next month. The better I am at putting in my transactions at point of sale, the quicker that process goes too! In theory I still have 29 days a month to send out resumes.
Edit: Within the top 10% by household income according to http://www.nytimes.com/interactive/2012/01/15/business/one-p...
You might still increase your income more than the time you spend saving money, though :) I was able to read your resume after adding an exception in Firefox, but I don't think employers would do that. It's a question of mentality, and I consider likely that you could increase your wage if you wanted to. But of course only you know that - for all I know you're exceptionally well-paid and kind of lucky to have scored your current wage at all. In my experience this is not commonly combined with tracking every expense.
But what do I know? John D. Rockefeller wrote every expense from when he was a teen through a billionaire. So who knows.
Possible! It's more of a pesky human thing that I track my money anymore, having gone through a period where I was tiptoeing overdrawing my bank account every day. I feel much more comfortable (less stressed) about making moderate to large purchases knowing that every cent is already accounted for and previously allotted to those purchases.
As for my place in the wage distribution it is a freak circumstance of well paying job and low COL area. Not that I'm dissatisfied with the area (yet..), but it also makes it hard to justify moving for a 2x salary when housing will be 3-4x.
You're presenting a false dichotomy. Personal accounting does not preclude personal growth. It takes about an hour maybe to set up mint to track your account and maybe a few minutes every couple weeks or once a month to look at it and see where you are. There's plenty of time left to work on growth.
It is true that you cannot reduce your costs to zero, and there is a point of diminishing returns for accounting, but the wealthiest people I know will take a vendor to task over pennies. I know that this mindset does not lead to wealth, but it does allow you to hold onto it.
It's important to have a money-guy to handle taxes, corporate paperwork, etc and have a basic budget. But as far as tracking all expenditures manually, I believe this is the wrong approach.
It's good to watch your money and sit down once a monthly to review where your money went and plan your next 30 days. Biweekly would be even better. This is a good balance between the two extremes while giving me more time to focus on building up my side businesses and other revenue drivers.
I tried but didn't like accounting apps because they force you to do too much work and just aren't that easy to find the functions I need. In the end I designed an excel file tailored to my needs (and it's giving me more fun than writing code), which gives monthly view of my financial activities, with support for currency conversion. So at the end of every month I would spend about half an hour logging all the numbers and get a nice overview. I can also put in spending and earning projections so I can easily see how I will be at the end of year.
It told me exactly what to needed to know: I spend a surprising amount on eating out, and a surprisingly small amount on holidays. Budget for the year: spend 50% less on eating out.
Two hours work total. Not perfect, but a piece of cake, and very valuable.
I couldn't keep my accounts up-to-date if it wasn't for ledger, vim, and the command-line interfaces. Projects like sc or ses aren't as versatile as Excel or LibreOffice Calc.
Well, I disagree, at least for myself. I always have trouble memorizing commands. Even after at least a decade of using vim, I have to admit with a blush, if I want to turn on the syntax highlight for vim or to show the line numbers, I have to go google for it.
I can easily imagine that if I don't use ledger for two weeks, I will most likely have to relearn it.
Perhaps most people don't appreciate the importance of cashflow forecasting and just think as long as they have a budget for this month and make a deposit to savings each month they're fine. If that's the case I would say they're probably misallocating.
YNAB? No YNAFSS.
A spreadsheet might work better, if I didn't have 20-30 accounts, and money constantly flowing around them.
When I turned the books over to the next treasurer, I helped him import into QuickBooks, which he was already familiar with. That's the one shortcoming of the tool, that you are unlikely to find anyone else (e.g. professional accountants) who's willing to work with it.
Do you really put every cent you spend into it? How is it possible? How do you remember all that. for example, during a weekend trip?
Next step: ok, assume we put every cent spent into the app. How does it help?
Even more: I already have all my transactions listed in my bank's mobile app. How to use it?
All you lose is the ability to later find out what you spent your cash on, but that's a trade-off most people are willing to make; rent and utilities and groceries are both easier and more important to track.
How to use that data?
But I'm mostly in your camp. I don't use accounting software for my personal finances. I don't know anyone who does. I think it's more useful for businesses or other organizations that have to be able to report where the money goes.
Once you have the data in a bookkeeping system (ledger or otherwise), you use it to answer specific questions.
Use it to find out where your money has gone (I spent how much on coffee?!), how much more or less you spent this month vs last, or vs this month last year, how much your liabilities are (debts, like credit cards), how much you've earned but not yet received (from your consulting clients, for example), etc, etc.
Ledger can print out simple text reports, or CSV that you can graph (most people will just paste that into a spreadsheet, but perhaps you prefer gnuplot or whatever).
Later your can run a report which shows how much money you spent. It will tell you how much you spent on restaurants and how much you spent on "miscellaneous spending". If you think that you want to explore what you are spending on "miscellaneous", then you can keep receipts for those things and start an account for it.
Remember the point is simply to let you measure things. It's up to you to decide what's important to measure. If you don't think it is important to measure anything, then the accounting package is very accommodating. You just don't use it ;-)
Assuming conditions are mostly static which they are for most people you now have an engineering theory or model with some predictive ability. Capable of answering simple questions about the future.
I'd like to go to the HOPE conference in NYC this weekend. (I can't for familial scheduling reasons but for the sake of the argument...) Given historical entertainment budget how many months ahead do I have to start saving up to pay for transport and hotel? A month? A year? Is is even in the cards for petty cash at all or am I going to have to save up to attend? At our current rate of savings when does my wife get a new car, this year, next year, later?
If you don't have questions like that there's no point gathering the data. Much like I ignore my fitbit and my mint data, I'd ignore this data in general.
Its also an old people filter. 20 years ago you got one checking statement per month mailed to you in physical mail. You'd have a whole month's financial transactions uncleared just hanging out there and then you'd balance your checkbook by whatever method so you could keep a running guess of your current balance. Now a days I have live bank account access and at most only a handful of online payments outstanding at any given moment so I don't keep a paper register or the equivalent anymore. So old people tend to have a "thing" for elaborate home accounting. It took me 30 or so seconds to determine that right now I could write a check for $2356.50 if I wanted to and it would clear, but not a penny more. In the old days it would have required some elaborate accounting OR I'd have to guess I probably have over $2K in checking and hope for the best.
I spend considerably less than an hour a week making these entries, perhaps around 15 minutes. If I was interested in having a more nuanced view of my finances with graphs, &c I'd probably leverage software to save me time.
I enter everything as it happens.
it is not perfect but it is the best app I have found so far that aligns with my various philosophy's.
it can generate XL spreadsheet and PDF reports.
easy way to see where one spends one's money
Also, there are ways of importing CSVs from your bank data: http://hledger.org/how-to-read-csv-files.html
Yes.
> How is it possible? How do you remember all that.
I don't, but my bank does. As much goes on cards as possible.
> for example, during a weekend trip?
On the rare occasion I end up spending cash, keep a receipt or take a note on your phone. Still, a fair chunk ends up in "Cash from wallet expenses." But since I know how much used to be in my wallet, I know how much was spent.
> ok, assume we put every cent spent into the app. How does it help?
First, Double entry apps help because they prompt you to think about whether things are an expense or an asset, and secondly whether your assets are properly allocated. Few tangible assets earn a return, and even cost money to store; a full accounting makes it easy to not only rebalance a portfolio of stocks and bonds, but your portfolio of crap in your house to investments and debts.
Why stop at only the past? Good apps allow you to record future dated transactions, so I can see whether I need to transfer money out of savings to cover a large purchase / family loan. Scheduled transactions help, and there've been points in my life where cash flow mattered, and having an app track what comes and goes when was useful for stress relieving by building confidence that the plan was viable.
Finally, a monthly habit of data reconciliation makes it easy to find fraudulent charges on your bills -- if your app has never seen a charge before, it can't autoclassify it to an appropriate expense account, and prompts you for advice.
> I already have all my transactions listed in my bank's mobile app. How to use it?
Good accounting tools can import qix/qfx/ofx. Sometimes you can even configure the app to download directly from the bank.
I go with the "pay yourself first" method. The first thousand dollars I get goes directly to long term savings. The next thousand pays the bills (rent, hydro, internet, food, gas, insurance). The next thousand is for whatever I feel like buying. In practice, I keep my impulse buying to a minimum, and that last thousand ends up paying for vacations, motorcycles, and replacements for expensive items that I ruin due to carelessness. (Hearing aids, laptops, cell phones, work pants, etc).
It's not a perfect system by any means, and there's lots of inefficiency and room for improvement. But in terms of practical results, I'm far ahead of most of my peers, and I'm not wasting any brain cycles on it.
I ask for receipt for everything (mind, here every cashier is legally mandated to offer you one without asking, so I decided to take advantage of that).
I neither use a fancy app, but old LibreOffice Calc thing I started a couple of years ago. I can now reliably predict my grocery expenses for each year; I also have a fairly good idea exactly how much I can afford to spend on unnecessary things like entertainment (books, Spotify etc) each year, so I now pay the mental effort to actually prioritize how much I want different things. I no longer pay things without planning it beforehand.
Maybe some people can do that kind of mental accounting without help of writing that all down on a paper or using software, but I've found it helpful.
For example, for the trip, if you like cash you could just make an entry that moved whatever amount of your savings to an expense account associated with leisure travel. Done. It's less useful to do that for non cash spending (Because having the accounting system balance spending transactions against the bank records is one of the things it is good for).
As far as what other uses, analyzing your finances over time. Once the information is machine readable and you have categorized the spending to some extent, you can see where money is really going. Most accounting systems will make it trivial to generate time based reports.
(I say this having used ledger for a while and then stopped...)
The key concept you need to understand is the concept of the balances. A transaction is always a transfer between two accounts. Buying a beer with cash is a transaction from assets:cash to expenses:beer. Getting cash from an ATM is a transaction from assets:bank to assets:cash.
> Do you really put every cent you spend into it?
Mostly. I started doing personal accounting together with my wife about a year ago (currently in Gnucash). I enter the payments into the software every 1-2 months. Usually my cash amount is off by 20-100$. I simply book that on the "unknown" account.
> How is it possible? How do you remember all that. for example, during a weekend trip?
Bank transactions are easy, I simply download the transaction statement. For cash, I either write it into a "accounting" Telegram chat that my wife and I share, or I keep the receipt and put it in my drawer.
It takes quite some time to do, but I think after 1-2 years I know enough about our expense behavior to be able to adjust it properly and to stop doing the accounting part.
Another welcome side effect: If I lend someone money, I never forget about it anymore ;)
The same way people who have had to account for things because of expense accounts, etc., always have: receipts.
Of course, these days its a lot easier; you don't usually have to keep paper around until you are ready to log everything, you can use your phone to photograph receipts or take notes as transactions occur.
> Next step: ok, assume we put every cent spent into the app. How does it help?
Same as profiling a program: it provides an important input to let you know where its useful to spend effort on improvements.
Most people use it to figure out what their spending looks like. A common realization is "holy cow, I spend a ton of my income on [eating out|smokes|alcohol]"
You can use it to project future balances with greater accuracy, you can plan bills, etc.
I think the value goes up (rapidly) the closer your expenses are to your income. If, by chance, you spend 5% of what you make, tracking your spending is probably utterly uninteresting- it'd be smarter to worry about tracking your investments. But if you spend 90%, 100%, 120% of your take-home, you really really need to track your spending.
It can also be handy at tax time if you have more complicated taxes.
In my case it gives me a clearer picture of my loans & repayment.
As some have mentioned, it makes fraud detection easy.
Work needed from me: Downloading the CSV once or twice a year, running the script, checking the output for anything that didn't get tagged by the existing rules and needs extra annotation.
Ledger is also tied into our billing system. A couple of shell scripts and Latex easily beats everything that I have seen in the last 10 years in the market. That is, of course, a subjective statement and is meant to be such.
Do you even know what accrual based accounting is and why you want to use it?
Having been involved in accounting system implementation for > 30 years, I understand that people are usually used to doing things one way and find it hard to adapt to change, but even after all my years in the industry, command line accounting fills me with unease - and this is coming from someone who still loves working in the DOS prompt!
I am sure for a simple expense/budget ledger it will work OK, but when it comes to recurring journals, multiple reconciliation accounts, inter company transfers, control account tracing etc., give me a nice GUI any day...
UNIX/Linux command line shells are actually made to be productive and your investment in using them is paid off almost everyday.
It's a common misapprehension that all CLIs are the same, but to be honest, that's from the perspective of the GUI user.
Perhaps you simply missignalled in your comment, and you're a *nix shell power user, in which case I'm preaching to the choir, and accept my apologies.
If you didn't misspeak, give Bash, Zsh or FiSh a serious try (Windows 10, MacOs and Linux all support these shells now.)
Whereas with some slick GUI you're probably trapped in that vendor's proprietary file format.
On the other hand, it's pretty obvious that plain-text files don't scale to a multinational, with hundreds of accountants of various types all trying to work with the same files. Even with proper use of Git I bet that would get old fast. You would instead want a real database, with a schema, and some data validation and some programs/webpages to smooth out the data entry and querying and whatnot. All of that can be done without any kind of lock-in to one data format, or one particular vendor's tools, but it's way too much overhead for a small business, let alone a single person.
But my experience is mainly in medium to large businesses with multiple users working on the information in real time, and with strict audit policies around them. I would imagine that would be a nightmare to try and handle using a distributed version control repository, let alone having situations such as one user uncommit their nefarious journals funnelling payments into their own bank account etc. I can imagine the face of the auditors having to run commands like `git compare` on the ledgers to trace transaction history... :)
But if we look narrowly at functionality, it seems that plain-text and git might be better for strict audit situations.
In a Git history every thing you do has to has a "paper trail" in the form of a hash chain (admittedly using an outdated hash function). People can only "uncommit their nefarious <anything>" is along as those transactions never found their way to someone else' hard disk.
Oh, nevermind. The ledger website includes it in their list of "ports to other languages". Beancount is a Python implementation of the same basic system.
I'm stuck on ynab4 for as long as possible, but you can try out the nYNAB (the SaaS offering) for free for a little more than a month. If you get it, be sure to watch the instructional videos.
It's just that after fighting with gnucash, I got the impressions that budgeting and accounting are very different things and that I should not try to use the same tool for both jobs.
I don't see why YNAB4 would stop working -- certainly I intend to keep using it as long as I can.
I also noticed that you can still buy a license on Steam, at least in the UK, and having run the application once through Steam you apparently get a license key that works standalone.
And v4 runs well on Linux using wine :).
https://chrome.google.com/webstore/detail/mojito-mint-with-a...
The mojito google spreadsheets look amazing, but I couldn't get things to work, and ran into a lot of errors.
The plethora of budget tracking software is frustrating. It seems no one tool is a clear winner. To me, this still looks painful. Mint is closest there, IMO. However, it's pretty much abandonware at this point.
Accounting is supposed to be integrated in applications that can make use of an accounting feature. It is not a stand-alone application. Accounting makes as few assumptions as possible about the used technologies which enables it to be used very flexibly. On the other hand, this means you will likely have to write glue code to integrate accounting into your application landscape.
Check out accounting on GitHub: https://github.com/Nick-Triller/accounting
(It also works for repeating or future expenses - I often "initialize" future files with stuff like rent or an average monthly expense for stuff like groceries, then I update it with receipts I have collected on the last few days)
So OP has privacy concerns with accounting services, but not with Google? Interesting.
Quicken is the only desktop app that works for Canada and Quebec, I think. How is it?
I'm on Mac, but I can run it on a VM.
I'm not entirely sure if Mint sells your financial information (i.e., what you spend money on, how much you have, etc.) to outside companies (namely, financial institutions). But, they for sure analyze your transactions to show you paid "recommendations" of what financial products you should use. I've browsed through some of their recommendations before. The majority of them are middling or good, but a significant portion (<15%) are incredible awful.
and yes, this means Mint probably sells your info, though they cover it in the privacy statement they have. [guess not actually (see reply from georgeglue1)]
EDIT: If your first statement is true, that tbh is a bit more of an alarming thing to know... oO
The Mint data set might be worth, say, 8 figures a year, but if you risk a user revolt on Quickbooks, it's not worth it.
As in data with PII and not anonymized data?
Its supposed to only yo the "right" people (some kind of accreditation process), but there was that story recently where a credits reporting agency was selling the data directly to some identity thieves...
Surprisingly, Intuit actually never sold any Mint user data (including anonymized or batched data). The Mint data set isn't actually that valuable when compared to what Intuit makes from its 'trustworthy' brand.
And sorry for the recommendations. We tried to target intelligently and scientifically, but sometimes awkward-ly targeted recommendations performed too well for us to not run them.
It's not so much that the recommendation aren't relevant (they are actually incredibly relevant; I found the cashback estimator for a given credit card based upon my actual transaction history to be very useful), but rather some of the products are just outrageously awful. (quick side note: I just checked my Mint recommendation and I'm going to recant what I said about a "significant portion" of my recommendations being awful; there's just one awful product). That one awful product is "WebsterOne® Relationship Checking". That account has a ~$15/month account fee (waived if you keep a $4,000 average balance).
Isn't personal accounting a waste of time ?
People have very different needs and practise personal accounting for many different reasons. There is of course a point of diminishing returns; tailor your accounting practices to your needs. Needs change over time. Some of us would benefit from doing more (or better) accounting, some less (I would guess this second group is smaller).
In [The Millionaire Next Door](https://en.wikipedia.org/wiki/The_Millionaire_Next_Door) (highly recommended), one research finding was that above-average wealth accumulators spend more time on financial planning, which for many of us requires accounting as a foundation. "Minimal time dedicated to financial planning is a leading indicator of a UAW [Under Accumulator of Wealth]".
Isn't a command-line tool too limited for real-world accounting needs ?
"I am sure for a simple expense/budget ledger it will work OK, but when it comes to recurring journals, multiple reconciliation accounts, inter company transfers, control account tracing etc., give me a nice GUI any day..."
Understandable. The current plain text accounting tools provide a very generic double entry accounting system with which you can model such things, and script them.
There are a number of generic GUIs available (hledger has curses and web interfaces, and there are web/curses/GTK interfaces for Ledger and beancount). But there are not yet a lot of rich task-specific GUIs. There's no reason they can't be built, though.
Isn't a plain text format too limited for large organizations ?
"it's pretty obvious that plain-text files don't scale to a multinational, with hundreds of accountants of various types all trying to work with the same files. Even with proper use of Git I bet that would get old fast. You would instead want a real database, with a schema, and some data validation and some programs/webpages to smooth out the data entry and querying and whatnot."
I'm not sure. Current plain text accounting tools can do some schema definition and data validation, and will do more in future. The plain text storage format is open, human-readable, future-proof (useful even without the software), scales smoothly from simple to complex needs, and taps a huge ecosystem of highly useful tooling, such as version control systems. And, despite the name, there's no reason these tools can't support other kinds of storage, such as a database. (hledger has four storage formats and is designed to accept more).
Do you really enter every little transaction ?
Yes! Many folks in our community do it. Mahatma Gandhi reconciled to the penny every night. J.D. Rockefeller was famous for his ledgers.
It's not required. I started doing it as a temporary learning exercise, and still like it. It makes troubleshooting and reconciling easier.
How is that possible ?
Practice, and a process/toolset that suits you. Some folks import most of the data from their banks, so little manual data entry is required. A few prefer to manually enter everything, for the increased awareness and insight. "Manual" data entry is usually assisted in some way: interactive console tools (hledger add and similar), web-based tools (hledger-web and similar), GUI tools (ledgerhelpers), smart editors (eg emacs & ledger-mode), recurring transaction scripts. I currently use a mixture of bank CSV import and rapid copy/paste in emacs. I spend 15 minutes a day on average, and for me that's currently a good investment.
How do I use the transaction data in my bank's web or mobile app ?
If you can export it as CSV, you can import it and run queries against it. There are also some tools for converting OFX, QIF etc.
So I've got a huge list of transactions recorded, duplicating my bank statements. How does that help ?
Accounting is modelling flows of money (or other value). Such a model aggregates information from many sources, in one trusted place. With it you can efficiently generate reports, forecast things (cashflow!), answer questions, try experiments.
Some people need a very simple model, others benefit from a more detailed one, and we don't know up front what we might need in future. The most fundamental accounting data is a simple list of transactions (the journal). Once you have captured this, you can mine it for anything you may want later on.
Plain text accounting provides nice open data format(s), tools and practices for doing this, and could be a good foundation for more powerful tools.
Where can I see a comparison of hledger, Ledger, beancount, and the rest ?
Glad you asked! http://plaintextaccounting.org gives an overview of these tools and practices. In particular see "Ledger-likes" and "comparisons" under "read more". hledger's FAQ discusses differences from Ledger. Beancount docs probably do too.
How do you do budgeting ?
Some notes are [here](http://plaintextaccounting.org/#budgeting). I emulate YNAB-ish envelope budgetting (see third link).
Double entry accounting ? Where are the debits and credits ?
Most (not all) plain text accounting implementations use signed amounts instead of debits and credits. This makes them "double entry light" perhaps, but it has been a rather successful simplification, intuitive to most newcomers.
Also YNAB 4 won't just suddenly stop working.