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?
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.
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 $2K in checking and hope for the best.
Also, there are ways of importing CSVs from your bank data: http://hledger.org/how-to-read-csv-files.html
Most people use it to figure out what their spending looks like. A common realization is "holy cow, I spend a ton of my income on [eating out|smokes|alcohol]"
You can use it to project future balances with greater accuracy, you can plan bills, etc.
I think the value goes up (rapidly) the closer your expenses are to your income. If, by chance, you spend 5% of what you make, tracking your spending is probably utterly uninteresting- it'd be smarter to worry about tracking your investments. But if you spend 90%, 100%, 120% of your take-home, you really really need to track your spending.
It can also be handy at tax time if you have more complicated taxes.
In my case it gives me a clearer picture of my loans & repayment.
As some have mentioned, it makes fraud detection easy.
The same way people who have had to account for things because of expense accounts, etc., always have: receipts.
Of course, these days its a lot easier; you don't usually have to keep paper around until you are ready to log everything, you can use your phone to photograph receipts or take notes as transactions occur.
> Next step: ok, assume we put every cent spent into the app. How does it help?
Same as profiling a program: it provides an important input to let you know where its useful to spend effort on improvements.
The key concept you need to understand is the concept of the balances. A transaction is always a transfer between two accounts. Buying a beer with cash is a transaction from assets:cash to expenses:beer. Getting cash from an ATM is a transaction from assets:bank to assets:cash.
> Do you really put every cent you spend into it?
Mostly. I started doing personal accounting together with my wife about a year ago (currently in Gnucash). I enter the payments into the software every 1-2 months. Usually my cash amount is off by 20-100$. 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 ;)
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 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...)
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.
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