Domestic Well- Being Accounting


General Introduction













A New Domestic Accounting Model

'Accounting for a Better Life'



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  ( )




                                                                                          [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 domestic finances?

'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 word accounts.

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 aims.

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 satisfactory way.

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 their doors.

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 accounting.

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 scenario.

Reports like the Trading and the Profit and Loss account were also, equally understandably, not much use in evaluating domestic success over some period.

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 encountered.

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 making.

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.

Basics 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 “luxuries”.

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 estate.

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 household increases.

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 countries

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 business profits.

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.

In 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 becomes real.

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

  '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.

 copyright © 2006 John M Passmore

Have a look at the Technical Introduction

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