Managing Personal Finances Using GnuCash

Bookkeeping for Home Accounting

Heard from some wise guy - "Money has only 3 purposes viz. Earning, Spending and Donating. To be successful in life you need to do all three very well."

Nothing could be more true. After having undergone the pains to buy a house, it behooved me to put a little discipline in managing my finances. My track record with managing money prior to buying the house was dismal - No tax saving, no records of where the money was spent, no efforts to make it grow. In short, I was a dud. All that had to change. My only strength was that I was good at number crunching. I knew I had to augment it with many skills - most importantly finding out when, where and how I was spending money. So I decided to learn Accounting.

I had no background in Finances, Accounting or Commerce. My background is computer science and engineering.  I wanted to bring every single means of spend – credit card, debit card, net banking, phone banking and every single header from EMI to Entertainment under the ambit of this “Get Disciplined” project of mine. Clearly, spreadsheet was not enough and maintaining them certainly wasn’t easy. I wanted to move out from this method since it was too time-consuming and error-prone. So I started looking out for some software solution to help me meet my goals. That’s how I stumbled upon GnuCash.

It was then that I figured out the basics like Double Entry accounting. A credit in some account has to have debit in some other account.  Voila, that was my answer. All the time it was in front of me, but it had never occurred to me that this way I could have kept a tight grip on my finances even when using spreadsheets. GnuCash, automates it. In fact, automates is an understatement, GnuCash enforces it. One cannot enter a transaction without telling the software which header to add the credits and debits to. It took me a few hours to understand the whole stuff, but the software UI and documentation made it so easy.

Here are a few examples of what I could achieve using GnuCash that I couldn’t with spreadsheets.

1. Effectively tracking credit card transactions – The transaction dates and the settlement dates were almost always different which made it difficult to tally in spreadsheet.
2. Cash transactions – The loop invariably used to be withdraw from bank, buy something, usually multiple items and update the spreadsheet headers (e.g. Books, Gifts, Entertainment etc). This way I could correctly keep a track how much I spend where, but I could never tell how much is remaining in the bank account and the wallet. GnuCash updates it automatically once I enter the transactions. Consistency issues were passé once GnuCash burst on the stage.
3. Reimbursement transactions – Many times, I need to spend and get reimbursed from office. These are multi-day transactions sometimes spanning months and sometime different currencies. I found these very easy to maintain in GnuCash. GnuCash’s colour coding used to tell me if I needed to follow up for settlement. Doing this in spreadsheet never gave this insight.

GnuCash works on the following principle

Once this is understood and you have an idea of how you want to structure different headers under which you will keep track of expenses, everything becomes easy. GnuCash defaults are quite relevant and can get one started without having to make any changes. However if you are the type who is fussy about seeing data only under headers than you want, GnuCash allows customization to suit your taste. I didn’t have to make much changes. The defaults just worked fine for me.  All I had to do was enter the balances from different accounts into GnuCash and I was ready to go. On an on-going basis I just had to enter transactions. That’s it. Pretty much an “Enter it and forget it” funda.

Moving from spreadsheet to GnuCash gave me the following advantages

1.  More time to myself – No more writing formulae and verifying manually. Software does everything from managing data to generating reports.
2. Less Typing – Being a software professional I end up typing up a lot. With GnuCash’s one time entry I need to type a lot less without having to compromise on data consistency.
3. Self Discovery – Earlier, I thought I knew where I was spending my money. Now I know exactly where the money is spent.  One of the discoveries for me was that I was indeed susceptible to impulse buying which otherwise I would have firmly denied. With smart phone apps and books coming for as less as $0.99 I had indeed spent much more than I had thought.
4. Peace of mind – It’s convenient to keep all entries for a financial year together.  Those are thousands of entries for me. Keeping in spreadsheet is so error-prone, especially when reconciling transactions, that it is easy to lose a few important details. With GnuCash I don’t have to worry about that. I can create a timeline of the spends.

For a full list of features, go to http://www.gnucash.org/features.phtml . If you like it, download a copy for your platform. It has worked like a charm for me without any quirks. The hints at startup give useful Usability as well as Best Practices tips. That minimizes the drudgery in entering transaction details and reduces a lot of efforts.

All in all, my “Get Disciplined” project is on track. As a side-effect it has made me more lazy. These days, I think more about how to escape not having to even enter the transactions. In fact, GnuCash supports Home Banking Computer Interface (HBCI) which allows German users to download a statement from their banks. Until that sophistication comes in India, don’t really see an alternative to manual data entry.

Overall, I am pretty happy how managing personal finances has become easy. If you have easier (and cheaper) ways to do it, let me know. GnuCash is free (despite having many more features) and that’s hard to beat, but they do accept donations. Hope I have been useful here.

Be in charge