Should You Track Personal Accounts in Your Bookkeeping? A Guide for Bookkeepers
Hello fellow bookkeepers! If you’re like me, you’ve probably had your fair share of experiences juggling the numbers for various companies. Recently, I’ve taken on a side endeavor: managing books for a few personal clients to earn some extra income. One of my clients is a newlywed couple, whom I’ll refer to as H (the husband) and W (the wife). Unlike my past roles, where I dealt primarily with established financial records, I’m setting up their books from scratch. This brought me to a pivotal question: How meticulously should I track their accounts, especially the ones unrelated to business or tax purposes?
Understanding the Complexity: H and W’s Financial Landscape
To give you some context, H owns two rental properties and files a Schedule E. Operating as a sole proprietor without an LLC, I’ve advised him to segregate his rental income and expenses into separate accounts, but this hasn’t been implemented yet. Both H and W have day jobs, channeling their salaries into a shared checking account—H’s account, also responsible for rental income and expenses. Let me break down their accounts based on business relevance:
1. Accounts Necessitating Bookkeeping:
- H’s Checking Account: Receives rental income.
- H’s Credit Card: Pays for rental-related expenses.
2. Accounts That Possibly Require Bookkeeping:
- H’s High-Yield Savings Account
- W’s High-Yield Savings Account
- H’s Brokerage Account 1 (Stocks)
- H’s Brokerage Account 2 (Bonds)
3. Accounts Seemingly Unrelated to Business:
- W’s Credit Card
- W’s Checking Account
- W’s Venmo
- H’s Venmo
Navigating the Financial Entanglement:
The crux of the issue arises because H manages W’s credit card payments from his checking, where both their salaries are deposited. This suggests H has his budgeting framework, and it seems tax-driven advisory is his primary reason for hiring me. Historically, they haven’t itemized expenses, so maintaining detailed records on the third category accounts seems unwarranted.
To Track or Not to Track: Final Thoughts
The dilemma: Should I manage the accounts listed in categories two and three? Initially, I targeted the first category for bookkeeping, but deeper engagement
One response
Hello and congratulations on expanding your Bookkeeping expertise to include personal financial management! The situation you’re handling with H and W is quite common, especially for newlyweds who are beginning to blend their finances. Let’s break down your question regarding whether to track non-business accounts in personal books and offer some insights which will hopefully guide you in creating an efficient and practical Bookkeeping system for them.
1. Importance of Tracking Non-Business Accounts:
While their primary goal may be for tax simplification, having an overarching view of their financial situation can provide several benefits:
a. Financial Clarity: By tracking all accounts, you’ll present a comprehensive picture of their financial health. This can assist them in understanding their cash flow, spotting any unnecessary expenses, and identifying savings opportunities.
b. Budgeting and Planning: Since their paychecks go into a single checking account, it’s beneficial to track where the money flows. This aids in budgeting and can alert them to any lifestyle changes they may want to consider, particularly in aligning shared financial goals.
c. Long-term Goals and Investments: As H has brokerage accounts and they both have high-yield interest savings, understanding the overall movement of funds could assist them in making informed decisions regarding investments and savings strategies.
2. Practical Advice on Handling Their Accounts:
a. Categorization: Consider categorizing expenses and income into ‘Business’ and ‘Personal’. For W’s credit card and similar personal expenses (category 3), you could indeed mark these as “personal expenses.” This simplifies the process while still maintaining a record of personal expenditure.
b. Separate Personal and Business Transactions: Encourage H to establish those separate accounts for his rental properties, as previously advised. This will not only streamline Bookkeeping but also protect personal assets and simplify tax filings.
c. Tracking Personal Accounts:
– For accounts listed under ‘probably need bookkeeping’ (category 2), track them to the extent they influence the household’s financial decision-making.
– Log major movements or transactions that impact the overall financial health, such as significant withdrawals or deposits into brokerage accounts which can affect liquidity.
3. Implementation Approaches:
a. Simplified Bookkeeping Tools: Leverage bookkeeping software that can segregate personal and business accounts within a single platform. This will streamline tracking without causing an unnecessary burden on your time.
b. Regular Review Meetings: Schedule quarterly or bi-annual