A New Domestic Accounting Model
for a Better Life'
John M PASSMORE
A New Approach to Home and Personal Accounting
It is more than "yet another" book on accounting, it may be a life changer.
Nichola Ross Martin FCA BA(Hons), Editor AccountingWEB (
A GENERAL INTRODUCTION
[Also have a look at the
Rationale & Technical Introduction]
The management and control of personal finance is a subject of immense
importance today to people, ‘on the way up’; it will also appeal
particularly to those who already have a developed sense of personal
responsibility and also to those who are showing initiative, by finding
out about new skills associated with personal development.
With a minimum of investment in time and resources it is now becoming
possible for any household to properly control its domestic finances.
What does it mean to control domestic finances?
Well, wouldn't it be nice to know exactly where the increases and
decreases are coming from and going to, respectively, to whatever degree
of detail you need? Not only that, but what are the proportions
being spent on the basic necessities and responsibilities of life,
compared to the discretionary, nice-to-have's of holidays, hobbies,
leisure etc. or luxuries, and do these represent a fair and proper
balance across your expenditure?
Furthermore, how about knowing whether your outgoings in respect of a
variety of different aspect of provision for the long-term future,
represent a reasonable proportion of your total expenditure?
Are there any danger signals? Is your debt under control and
manageable? Do you know exactly how much you can put aside
regularly for both shorter-term and longer-term, future pension needs?
How do your finances compare with others in a similar situation?
If you knew the answers to all these questions, would you then be in a
better position to determine whether your financial situation was
satisfactory or not?
Even knowing the answer to all these questions though, how do you go
about measuring or determining if your domestic financial targets or
overall direction is good, satisfactory or bad? What is good or
bad, in terms of domestic finances?
If you were able to work out what changes were appropriate, wouldn't it
be nice to budget for these changes in terms of a best possible balance,
in relation to the detailed areas where you had decided change was
necessary? And wouldn't it be nice to know if you were keeping to
budget, or that some ‘currency-trading’ across categories might be
appropriate, rather like carbon-trading?
In business, accounting and all that it implies, has evolved over time
to become the modus operandi for its control; indeed it is a
legal requirement for business to conduct its financial affairs
according to strict accounting rules and regulations and to submit
annual, audited accounts as a record of its financial state of affairs.
If accounting is the key to the control of business, surely it may have
something to offer for the financial activities of personal, home or
'Accounting for a Better Life' is a new book published in August 2007
* in which John Passmore proposes a new, simplified and
fun approach to home, personal and domestic accounting. He
describes both the results of his endeavours and provides the necessary
background and information for anyone to get started with setting up and
running their own, domestic accounting system.
One of the book’s sub-titles is ‘Gain Control of Domestic Finances’.
It is appropriate to think a little about these ideas. What
exactly do we mean by domestic or personal finances; and what does it
mean to control them?
In fact, domestic finances are all about domestic, financial activity.
Without going into too much detail here, such activity is all about
changes to our finances. This means changes in the values of our
assets and our liabilities, the two primary components of our finances
which can be represented or modelled in our accounts – and of course,
they don’t only relate to money, which most people associate with the
Accounting is a way of recording past financial activity as a basis for
control. Control is all about deciding how best to influence future
financial activity, to meet as yet, for the domestic scene, some unclear
Searching websites using a key of Personal Finance brings up results for
example, about loans, mortgages, insurance, investments and pensions, as
well as the best deals on homes, cars, energy and utilities, including
telephone, broadband and TV.
These are the sort of subjects upon which past and future financial
activity is concerned; but decisions relating to selections of which
particular items to acquire or dispose of, and how much or how many,
require expert knowledge. This knowledge must be based on both the
particular item under consideration – which is what most of the websites
claim to offer - as well as the facts and visibility that only
accounting can provide, about the overall financial situation of the
household contemplating such a purchase or disposal.
The other major area of domestic finances for which a web search and
business accounting provide little help is in the area of domestic
expenses. What we are referring to here is the outgoings or
decreases for which no tangible object is received in return. For
example, when we buy a car, we exchange an asset, cash, for an object
that we can see and drive about. Of course we might choose to
borrow some of the cash so we end up with a liability as well.
In contrast, all the food and drink that we buy, once consumed, leaves
nothing but increased value in terms of healthy bodies. Similarly,
restaurant dinners, holidays and gifts we buy, provide increased value
in terms of happy memories, exchanged again for value in terms of
decreases in our cash assets.
The point here is that in general, business is essentially more focussed
on the exchange of different forms of assets whereas much more of the
financial activity in domestic life, is actually associated more with
those various forms of value, as expenses. So John needed a way of
highlighting this aspect of domestic financial activity; and it is his
new focus that achieves this, together with some appropriate changes to
simplify the accounting techniques.
The result is a new accounting model tailored or focussed on home and
personal financial activity.
Today, increasing numbers of families own or have access to a computer.
Software packages for home and personal accounting have been around for
a long time. So why is it that everyone is not in full control of
their finances? Accounting is often thought of as a somewhat
difficult and boring activity. Even with computer support, it has
still not been very easy to undertake domestic accounting in a
If people realised the extent and value of the average, domestic cash
turnover in the course of a lifetime, it seems amazing that serious,
financial management is not already demanded. If an equivalent, small
business with similar turnover was not effectively managed, the owners
would probably have shareholders, accountants and others, knocking on
What is about to change is that the problems and difficulties with using
accounting for domestic purposes will see a new light, all because of
the introduction of a completely new approach called Domestic Well-Being
When John Passmore attempted his own domestic accounting some years ago, he started with an
off-the-shelf, accounting package as the framework for a double-entry
based system. The only guidelines available were based on business
accounting where the focus was on profit, shareholders’ value,
purchases, sales, expenses, etc - hardly relevant to the domestic
Reports like the Trading and the Profit and Loss account were also,
equally understandably, not much use in evaluating domestic success over
Business ratios like Gross and Net Profit Margins, Return on Capital
Employed and over twenty other ratios, although vital for management and
control in business, have absolutely no bearing on domestic finances. So
John decided to find other ways to solve the problems he had
This is what ‘Accounting for a Better Life’ and Domestic Well-Being
accounting is all about – it provides a new accounting model for the
continuing, life-time basis for all domestic, financial decision
He uses the general-purpose, Microsoft Money© software and a
spreadsheet package but any accounting package that offers support for
categorisation of transactions could be used.
With basic computer literacy and optional, on-line access for
downloading bank statements,
John believes that exciting benefits are potentially available for a
family or domestic situation with a shared annual income, of around
£20,000/$40,000 and upwards.
Having said this, some people with even less income but with
accumulating debt would also benefit from the visibility provided, in
order to best plan a successful way forward.
Although he thinks that the earliest possible familiarisation with the
new concepts and methods will be very important, the real value in a
practical sense will be for young adults who are ‘on their way up’.
They would benefit most in using this new Domestic Well-Being
accounting, once they have graduated and begin to take on financial
independence. Possibly, between the ages of 25 to 45 might be the
crucial period but the earlier the better, because home accounting will
have become a good habit before life becomes generally, too busy.
Also, those who have learned to live with the power of the new domestic
accounting will hardly give it up at 45, but will most likely carry on
with it until retirement and far beyond.
The real key here is the requirement for someone to have a sense of
personal responsibility for the financial affairs, towards the members
of their domestic, family situation. Using the new methods could
also help to promote a realisation of the need for this type of
responsibility in those who are perhaps beginning to get into financial
difficulty and have not yet given financial responsibility much thought.
First, he simplified everything with naming conventions, simplified
terminology and domestic accounting equations, to make the mechanics of
accounting easier to understand for home users. Here, the fundamental
concepts and implications of just two overarching types of account –
asset and liability – and their interrelationship through ‘conservation
of value’ highlighted in the domestic, double entry equations, means
that domestic accountants will always understand exactly what is going
on in their accounts.
Next and most important of all, he devised a completely new and relevant
focus for home accounting which he called Domestic Well-Being (DWB). He
defines DWB in terms of a structure of the components of increases and
decreases of domestic, financial activity, characterising daily life.
The DWB structure consists at the top level, of the three categories
“the Basics”, “the Discretionary” and the catch-all of “Others”,
together covering all aspects of domestic finances.
are subcategorised into “essentials” (food and drink, utilities, etc),
“responsibilities” (taxes, mortgage, insurance, etc.) and “family”
(personal commitments, gifts, etc.).
Similarly, the Discretionary category includes asset purchases
and sales (e.g. house and car), other sub-categories such as
“nice-to-have” (holidays, hobbies, entertainment, etc.), “investment for
the future” (home improvements, pension contributions, etc.) and
The Others category consists of uncontrolled changes such as
inheritance, appreciation, depreciation, losses, fines, etc.
The power of this structure is that it provides an easy way to
categorise all the domestic financial transactions as they occur, from
day to day.
For the so-called, Financial Results, the business Trading and Profit &
Loss accounts are replaced with a “Domestic Changes" account.
The Capital account is now called the Domestic Wealth account and alongside the
personal debts, represents an overall liability as the ‘Estate’, owed to
all the eventual beneficiaries who will one day, inherit from the
A new report called the Domestic Well-Being Statement (DWBS) shows the
breakdown by categories and sub-categories, for all changes over any
period, resulting in the Total Domestic Change over some period.
John has defined a new set of Domestic Financial Factors to replace the
business ratios. For example, the “Basic Cost of Living Factor” (BCLF)
expresses the amount of the basic domestic decrease, compared to total
household increases, whilst the "Well-Being Contribution Factor" (WBCF)
is the proportion of discretionary domestic decreases, compared to total
Together, these new factors provide 'shape' to any complete set of
domestic accounts and can be used as one of the starting points for
control through comparison with previous values, leading to the possible
need to initiate some changes to future expenditure. A ratio of
course provides two potential means of changing its future value, by
changes to its numerator or denominator, or both.
These ratios also have future potential over and above their use for
control in an individual set of accounts, for a new form of domestic
financial comparison, by regions and even internationally, across
The fantastic benefit of all of this is the visibility provided, as a
basis for analysis and planning and control for the future. The balance
across the categories becomes clear and the split amongst the decreases
across the different sub-categories, is also exposed.
Once decisions are made on the need for changes to the balance between
the categories or to the values for any of those new versions of the
business ratios, these can be translated into amounts of individual
category changes over any desired future period – typically a year.
Budgets can be prepared that will provide automatic warnings as
decreases in the different, selected category or sub-categories,
approach any pre-set limits on perhaps, a monthly basis.
The idea of improved or maximum Domestic Well-Being is all about
achieving a better balance across the components of its structure.
This translates into the best sharing of increases received, with
decreases across both the categories of Essentials and the
Nice-to-Haves, as well as between the various subordinate sub-categories
within each category. The new focus for domestic finances and
accounting is to maximise Domestic Well-Being, in contrast to maximising
The practical implications of using DWB accounting are to first, acquire
the general purpose software packages needed and to then setup the
appropriate accounts and reports. The accounting package will
first, in support of bookkeeping, provide a means to capture, categorise
and store the individual financial transactions, as and when they occur.
Second, they will facilitate the querying of the accumulate transactions
to produce the appropriate reports in the new formats.
Example accounts and reports as well as some tutorials are provided in a
bonus CD. These are based on the packages used by the author
(Microsoft Money and a spreadsheet package) although other similar
products should be equally capable of being utilised provided that they
support transaction categorisation. Prototypes are available to
avoid the need to key-in basic information from scratch.
Information about the household's starting, financial situation will be
needed but it can even be added later, after the entering of
transactions has been started.
The book will provide the necessary background material and all the
details about how to enter transactions and periodically, run the
reports as and when needed. John says that a couple of hours will
be all that is required each month to enter transactions and a couple of
half-days at the end of the financial year, for the reports, charts,
analysis and establishing new budgets. Of course control is a
dynamic process and should not be limited to year-end.
the prevailing UK situation of a very severe debt crisis, the new
approach, almost in passing, provides the visibility on the state of a
family's financial affairs required to provide warnings of potential
difficulties. With this, the appropriate defensive actions can be taken
to prevent falling into the debt trap. For those already experiencing
some debt, the new methods provide the necessary visibility on their
finances to facilitate the required planning and control, required to
best manage debt recovery.
The benefits are that with the accumulation of a few months' worth of
figures, a realisation of the actual spread and balance of the family
outgoings will become apparent.
John reminds us that accounting in itself, will not achieve this.
Discipline will be required to change spending patterns in order to
obtain the planned changes.
He believes the new accounting model and associated methods have the
potential to be adopted, eventually world-wide, as a formal,
sub-discipline of business accounting. With such recognition, the
motivation for appropriate investment from industry and the state
From this, improvements in software support, the further calibration of
the new domestic factors and the creation of an associated training
infrastructure can all be further developed and refined.
John also believes that the new methods have important potential as a
basis for teaching youngsters about accounting for the personal,
financial parts of their future lives. This has to be in a way
that is totally focused as a foundation for them to later, accept and
take on the control of the personal, financial responsibilities that
will often be associated with success, in modern life today.
Although targeted primarily at private individuals as potential,
end-users, the book will also be of interest to professionals in
finance, particularly banking, accounting and debt management, as well
as in education. The latter, as part of citizenship including
post-graduate and Adult Education, as well as for those concerned with
personal development planning and the associated life skills in
universities and the professional institutions.
Also, take a look at the author's website on Domestic Well-Being
Accounting, together with sample products and a growing list of
tutorials, at dwba.co.uk.
'Accounting for a Better Life', an authoritative book, written with
rigour and thoroughness, is published by Troubador Publishing Ltd. under
the Matador imprint (
and became available from August, 2007.
2006 John M Passmore
Have a look at the