Tom Lee-Gough

Personal Accounting

I've been using Gnucash since 2016 to create a full set of accounts for myself. It is a thing of beauty. Now that I have several years worth of transactions, it is really interesting to see how things have changed over time. I initially started out just trying to monitor cashflows. However, as time has now gone on, I have a much more comprehensive set of accounts. Creating a good set of accounts has made me think about a few different complex scenarios in personal accounting.

Cash vs Profit

I think that it is fair to say that most households probably think in terms of cashflow rather than profit. Profit is necessary in order to grow overall cash, but a profit and loss doesn't feel like it quite captures how one thinks about household finances.

For example, if you has a repayment mortgage there are usually monthly repayments. A portion of that value is interest and a portion is debt repayment. A profit and loss would only capture the interest portion of the payment, not the debt repayment. In terms of a mental model, I think that this would screw a lot of people up. If you were doing a periodic review, you'd also need to look at the balance sheet to show the reduction in debt.

Initially, I did not have the mortgage as a liability. So all mortgage payments were an expense on the profit and loss. Once I started to record the value of the mortgage, I posted interest payments to the mortgage expense nominal code. These two offset each other so I essentially had a cash view on the profit and loss. I've now corrected this and account for the mortgage payments correctly. But it does require thinking about.


For me, because pension payments come out of your salary before you see it, it didn't feel that real. Combined with the feeling that a pension was a long way off, I didn't record the value of the pension pots on the balance sheet. I now do. It is interesting to follow the periodic movements of a pension and to see it as an asset. I would suspect that a lot of people misunderstand the size of the pension pot, and how the size required for a retirement.

Creating a proper balance sheet with pensions is going to make it a lot easier for me to track down pensions in the future. I suspect that many professionals of my generation and younger will end up with multiple pension pots from different providers.


Accounting tries to model reality. Profit is essentialy the revenue and expenses allocated to the period where the activity occurs. All of the accounting standards attempt to reconcile perceived reality with the legal status of documents and payments. Some assets and liabilities feel more real than others. Cash feels real, financial instruments don't.

Student loans don't get recalled and function more like a graduate tax, than a loan. Strictly speaking a student loan would appear as a liability much like a mortgage. However, I think that it would skew your balance sheet and not really add value. I suppose mortgages can feel like that. So long as you can manage the repayments, the banks don't really care.

Some of the accounting standards are monving away from cost and towards net present value (NPV) of future cashflows. Is this more real for households? It probably is. But it is mind-blowingly complex.

Signing off

Having a proper set of household accounts is very useful. Not the vanity of tracking "net-worth", but getting an accurate financial picture really helps with planning. It does throw some interesting thoughts over how closely you should follow GAAP. Accounting does seem to have ended up with a heavy business focus. Accounts are different for a business, they potentially live much longer than humans and have different goals for reporting finances.

At any rate, I think that it is worth the effort to create a solid set of personal accounts.