How to Set Up Home Accounting System

A home accounting system enables you to take an objective look at your finances and effectively manage your money. It is a tool for tracking your income and expenses, and budgeting for future situations. A home accounting system functions in the same way as a simple small business bookkeeping system: by providing a format for entries corresponding to each expenditure and source of funds, and categorizing these entries in order to make them easier to understand.

Create a spreadsheet to track your personal expenses. An accounting pad with columns works well, as does a computer spreadsheet. Label the columns according to your basic categories of expenses, such as rent or mortgage payments, food, entertainment and utilities. Leave the far left column to enter the date of each expenditure and the store or company you paid. Create a summary spreadsheet as well using the same categories, so you can enter your totals for each month and see an overview of the entire year.

Create a template for a personal balance sheet. Use the top half to enter all of your assets, including the amounts in your checking and savings accounts, your investments and retirement accounts, equity in your home, money that is owed to you, the value of your vehicles and other possessions, the value of your life insurance policy and anything else that contributes to your net worth. Use the bottom half to enter all of your liabilities, including money you owe on credit cards, mortgages, car loans and any outstanding bills.

Create a spreadsheet to track your personal cash flow. Designate a column for each month of the year and use the far left column to list your categories of incoming revenue and outgoing expenses. Label the top line, "Cash on Hand," and then skip a line and label the next section, "Incoming Cash." List the different types of income you receive, such as salary or wages, rental incomes and dividends from investments. Label the bottom line of this section, "Total Cash." Skip a line and label the next section, "Outgoing Cash." List each type of personal expenditure that you make, such as rent or mortgage, food, credit card payments and utilities. Label the last line of this section, "Total Expenditures," then skip a line and label the last line, "Available Cash."