Thursday, December 02, 2010

Month end accounting

I had just finished my month end accounting. Every end of the month for the past 2-3 yrs, I had been tallying up numbers to fill in 4 excel spreadsheets. The first is my stock holdings, the second my balance sheet, the third my income statement and the last my cash flow. I started doing that when I wanted to know exactly how much I had in order to plan ahead. Personally, I find it hard to plan ahead when I do not know how much resources I had in the first place, so the first step before even my savings plan is to take stock of what I had.


So, what's the use of each of the spreadsheet that I update it so religiously every month?



1. Stock holdings - This spreadsheet records all my transactions since I started dabbling in the stock market. I used to update it daily but recently, I've been getting lazier. Seriously, I also don't think there's any point in updating it daily as it serves no purpose other than to inflate or deflate your ego. I used this for planning purpose too, like when I want to know how much I would make (inclusive of brokerage) by selling XYZ at this price.



2. Balance sheet - This records all my bank accounts, cpf, cash under my bed, MMF, cash holdings held in brokerage account, insurance surrender value and CPF. Currently I don't have any debts, so my assets will be my networth. Soon there'll be one more column added to include debts from housing and what other liabilities that comes with more assets. I track my net worth in a chart but I did not set a goal for it, so it's purely for tracking purpose. I find it useful to know how much liquid / illiquid assets I have, again for planning purpose.



3. Income statement - My job necessarily means that my work done is different from the cash that I have in my pocket. It could be up to a month before I get paid for the work that I do, hence it's important to have a separate statement for the amount of work done in each month and another one for the amount of cash received for each month. Currently, I'm giving credit (usually 4 weeks) so my cashflow is delayed by roughly a month. I think in the near future, the whole situation will be reversed as I plan to collect fees ahead of actual work done. I've been tracking this since I started working 7 yrs ago, so I know how my income varies over the month. It's important for a self employed like me to track such things zealously, otherwise I can really be in a fix because of cash flow problems.



4. Cash flow - This is tied up with my expenditure and is the only spreadsheet that I update it daily. What I would do is that I would key in every transactions made daily into my handphone, and I would transfer it every week to my spreadsheet. At the end of the month, I would have a breakdown of the things and the amount spent. Every drop of cash that I received would also be keyed in as it comes along, so that by comparing my cash inflow against my cash outflow, I know how much I had saved for the month. This sheet is important because it lets me know how much I can save in different months. Unlike employees with a fixed paycheck at a fixed date (which makes saving a fixed sum a matter of mechanical discipline), I would have to adjust the amount of savings I can save in any particular month by considering how much I can possibly earn in that month. All is fluid and all is flux.




Very recently, I started to include any 'appendix' attached to my cashflow spreadhseet. This is named 'credit card expenditure'. As I started to have more than 1 card, expenditure charged to my credit card gets more messy. I seriously do not know how people can have more than 10 cards, unless they do not track and pay as the bills come along. It should be a good habit to track down the usage of each card so that you can check the bills in case of misuse (either personally or by unauthorized usage) of the cards itself.



As I wrapped up the current month end accounting, I had a epiphany. It seems like the very well to do and the not very well to do are the people who do not track their money so closely. It would make sense because the rich have too much to take stock so it's a waste of time to track down to the cents (or even the thousands). As for the poor, there's nothing much to begin with so it's demoralizing to count what you have. That leaves the group that wishes to climb up further and do not want to fall down lower. I should belong to this group, in conclusion.

8 comments :

JW said...

LP,

I tally my daily expenses into 3 different categories:
Misc, Food and Transport

I do this every night. It's really interesting to see how much you spend.


On the month side, I tally the income from my tuition students too because there are just so many. Dividends received are also tallied into the month-excel-sheet.


At the end of the month, I will tally the sum into my frontmost year-excel-sheet, which includes my stock holdings, MMF funds ready for buying, total income earned from the year, my expected income sources and expenses, etc.


Recently, because of some big one-off expenses, I have also included one sheet purely for such one-off big expenses, like the new desktop I'm buying. This is eventually tallied into the year-excel-sheet too. Maybe we should meet up and I can show you my excel sheet :)



I don't really track credit cards expenditures because I use mainly one, and all these are already tracked into the expenses section.

crystal said...

As I wrapped up the current month end accounting, I had a epiphany. It seems like the very well to do and the not very well to do are the people who do not track their money so closely. It would make sense because the rich have too much to take stock so it's a waste of time to track down to the cents (or even the thousands). As for the poor, there's nothing much to begin with so it's demoralizing to count what you have. That leaves the group that wishes to climb up further and do not want to fall down lower. I should belong to this group, in conclusion.

AGREED on this statement. But unforunately, it should be the poor and middle-class that need to plan MORE on their wealth than the rich ones in my opinion.

I have started having this habit 6 months back only. It's quite an experience and a challenging exercise especially at the inertia stage.

But as time goes by, I appreciate the efforts of doing my personal month end closing too. Now, I have a better idea of my fixed and variable expenses. In fact, at the top of my head, I can tell my financial planner how many % of my income goes too... hahaha

That asides, the greatest advantage is having greater clarity and ability to plan my monies. An excellant tool especially year end is coming ---> New Year Resolutions!

Being a saver and yet a shopper(so extreme! :LOL:), I do have another tab -- that is keeping track of my points too(such as credit cards points and starhub points)! I plan which cards to use in advance and redeem xx vouchers to purchase my 'wants' or simply redeem points to catch a movie!

Anonymous said...

HI BULLy the BEAR,

For stock portfolio tracking isn't the brokerage's 'free software' good enough?
Ya, on second thought, it is not good enough.
I use a 'dedicated software' for tracking all about my assets & liabilities.

la papillion said...

Hi JW,

I agree, it's interesting at first to see where your expenditure goes to. I lost interest after a while, because they don't change a lot, haha :)

Looks like you've got a system that is working well for you :)

la papillion said...

Hi crystal,

Wow, congrats for enduring it for 6 mths :) Most pple can't last more than 1 month because it's too tedious :)

If I have so many credit cards that goes by points and cash rebate, I'll pay close attention too :) My wife had the UOB one card, but she don't keep track of her expenses. That means the purchases are not maximised over the different cards. I can appreciate why you need to keep track of the points, haha :)

la papillion said...

Hi anonymous,

I don't think the brokerage tracking is good enough for me. There are several reasons:

1. I use different brokers. Hence, unless you key into the one that helps you to track, the different purchases made with different brokerage will not be reflected into 1.

2. For rights and IPO, the brokerage do not include these.

3. I don't think brokerage even include commission. I've seen some where the profits/losses are made on the difference between the buy and current price.

4. Can't do data crunching with the brokerage tracking. If you want to find your ROI or yield, you still have to do it on a spreadsheet anyway.

Alvin said...

so interesting LP!

Using standard financial statements to evaluate your financial health.

I should do it too!

la papillion said...

Hi alvin,

Haha, I actually started doing this after I learned accountings DIY in order to analyse financial statements. I found the accounting model of thinking quite fantastic, so I adopted it .

For employed pple, I think there's no need to have an income statement. Cash flow should be good enough :)