Personal Bookkeeping Mastery: Budgeting, Tracking, Tools, and Techniques

Personal Bookkeeping Mastery: Budgeting, Tracking, Tools, and Techniques

According to a survey published in 2024 by leading financial analyst The Motley Fool, nearly 91 million Americans say that they’d have a hard time raising $400 in a pinch.

The fact that you’re reading this article means that you’re unlikely to be among that number. Or perhaps you’re concerned that you might be, but you’re determined to change that.

Congratulations. 

You’ve also zeroed in – quite correctly, we might add – on the #1 factor you need to change to improve your finances: managing them. 

When it comes to golf, calories and personal bookkeeping, we take a lot of gimmes.
Close enough doesn't count with money. (It doesn't actually count in golf either. That's why I don't play much anymore.)

But while you’re clear you need to put a system in place, you’re wondering where to start. Which of the host of apps, softwares, tools, templates, each promising to help you manage your money better, is right for you? 

Overwhelmed? Don’t worry, we’ve got your back. 

This article will not only clear up your confusion about terms like budgeting, bookkeeping, expense tracking and accounting, it’ll walk you through the best tools and apps you need to set up an easy, yet effective system for staying on top of your money matters. 

Budgeting vs. Bookkeeping vs. Accounting: What’s the Difference?

One way to think of budgeting, bookkeeping and accounting is to compare them to preparing for a road trip.

Budgeting is your trip planning, while bookkeeping is akin to maintaining a detailed travel log, with a record of each pit stop, from refueling to dinner breaks. Accounting is the post-trip analysis, examining whether you stayed within budget, where you overspent, and how to plan better for the next trip, so you can actually save some money.

Is bookkeeping the same as expense tracking?

Although expense tracking is sometimes used synonymously with bookkeeping, it is really only a component of bookkeeping. Expense tracking involves simply logging all your spends, so that at the end of the month, you have a pretty accurate idea of where every dollar went. 

Bookkeeping comprehensively maps your personal finances: It not only records all your income and expenditures, but it also maps out your debt situation (including money you owe as well as money owing to you) and tracks increases and decreases in the value of your investments and your assets (house, car and so on).

Accounting involves analyzing and interpreting your financial data. It generates a bird’s eye view of how money was planned, what actually happened and what can be predicted for the next financial cycle.

When do I need a professional bookkeeper or an accountant?  

Most working individuals can manage day-to-day personal bookkeeping by themselves. This article provides a set of helpful tips, tools and techniques to enable you to do just that.

However, there are some situations in which seeking professional expertise is advisable. Keep in mind that seeking professional help isn't a sign of failure – it's a smart move to ensure your finances are in order.

Seeking professional bookkeeping advice

Here are some instances when advice from a professional bookkeeper might help you save time and money:

  • Your financial situation has become complex (e.g., multiple income streams, investments)
  • You're struggling to keep up with regular record-keeping
  • You need help setting up an efficient bookkeeping system
  • You're starting a small business and want to separate personal and business finances   

Seeking professional accounting advice

Tasks such as generating detailed financial reports, understanding the tax implications of certain transactions (such as buying a car), as well as extracting financial insights for future planning may benefit from the expertise of a qualified professional such as a tax preparer or a CPA.

Other scenarios in which seeking advice from a professional accountant might help you make better financial decisions include:

  • You're facing a major life change (marriage, divorce, inheritance)
  • Your tax situation is complicated (multiple properties, foreign income)
  • You need advanced financial planning or investment advice
  • You're audited by the IRS
  • You're planning for retirement or estate management    
You can marry an accountant as a way to handle your personal bookkeeping.
If you marry an accountant, you would be a smart person. There is even a mug you can get to brag.

Best tools for managing personal finances

The right software can make a world of difference in managing your money. In this section, we’ll explore the best digital solutions for budgeting, expense tracking, bookkeeping, and accounting.

If you're just starting out on your money management journey and would like to know which tools can help you keep better track of your money as it comes in and goes out, skip to the <bookmark> section on the best budgeting and expense tracking apps.  

But if you feel ready to take your financial management game to the next level, we’ve got you covered. Just skip to the <bookmark> section that provides a more in-depth review of the best bookkeeping and accounting software for different needs and financial profiles.

Best apps for budgeting and expense tracking

Here are some of the best apps currently available to help you plan how your money will be spent and then keep tabs on where it actually goes.

Note that these are all mobile apps that you can easily install and use on your cell phone. These tools are great for day-to-day financial awareness, but when it comes to managing your personal finances, they're just the starting point.

AppBest For (User Profile)Key FeaturesFree Version Available?Pricing
Quicken Simplifi Families seeking all-in-one household finance management auto-import transactionstrack billsset savings goalscreate reportsshare budgeting w/. family members No $35.88/year 
EveryDollar Individuals & families prioritizing getting out of debt auto-import transactions (Premium version)customize budgetzero-based budgetingYes (14-day Premium) $17.99/month or $79.99/year 
NerdWallet Individuals & families on a tight budget keeping tabs on their credit scores track transactionsmonitor cash flowcalculate net worthcheck credit score Yes (Always free) Free 
GoodBudget Families aiming for a strict spending plan allocate $$ using envelope approachshare budgeting w/. family members Yes $10/month or $80/year 

Best bookkeeping and accounting apps

Most modern finance apps (software programs) blur the lines between budgeting, bookkeeping and accounting, offering features that span all functions. 

The table below summarizes the highlights of the best bookkeeping software available at present. The key is to choose a tool that matches your needs and comfort level.

AppBest For (User Profile)Key FeaturesProsConsFree Trial & Pricing
Quicken Households with complex financial needs customize budgetbookkeepingautopay billstrack rental income & expensesmonitor investmentsplan retirement strong reputation scalable no 3rd party app extensions $35.88/year 
HomeBank Budget-conscious individuals/families with some familiarity with  accounting softwarebookkeepingautopay billsgenerate reportsfreecompatible with Mac OS X and GNU/ Linux limited customer support$10/month or $80/year 
Wave Small businesses, especially service-based track expensesbookkeepinggenerate invoicesaccept payments (paid)payroll add-on (paid) free basic version simple to use limited app integrations payment processing fees $17.99/month or $79.99/year 
QuickBooks Online (QBO) Small businesses customize budgetbookkeepingautopay billsgenerate invoicesaccept payments (paid) scalableuser-friendlycommunity support monthly feelimited users 30-day free trialrange of monthly plans ($30, $60, $90, $200)

Which app/ software should I use for bookkeeping?

Embarking on your bookkeeping journey doesn't have to be daunting. Whether you're just starting to track your daily spends, managing a side hustle or dealing with a full-fledged small business, there's a perfect solution out there for you.

To decide which app or software is most likely to suit your bookkeeping needs, the easiest way is to figure out what those needs are. We’ve put together a simple rating scale to help you do just that.

Rating scale for choosing the ideal bookkeeping tool for your needs

Answer the questions below to accurately profile your bookkeeping needs, then use the scoring key provided below to determine what app or software might be the best match for you.

What is the extent of your financial tracking needs?
1 – Personal expenses only 2 – Unsure3 – Complex personal or business finances
How many accounts do you plan to manage?
1 – One or two 2 – A few3 – Multiple accounts across various institutions
How important is it to be able to import transactions automatically?  
1 – Can handle manual imports 2 – Either is fine 3 – Need automatic imports 
Do you need to monitor retirement-related accounts (e.g., 401K)?
1 – Not needed 2 – Might be useful 3 – Essential feature 
How crucial is bill payment functionality?
1 – Not necessary 2 – Might use it 3 – Must be able to pay bills through the app 
Is it important to have extensive report generation features in the app?
1 – Happy with basics 2 – Some reports would be helpful 3 – Need detailed reports 
How many other users besides yourself will you be adding on?
1 – Solo use only 2 – Might need to share 3 – Multiple users must have access 
Will you need cell phone/ mobile access for on-the-go monitoring?
1 – No, desktop is fine 2 – Basic mobile access would be handy 3 – Must have robust mobile features 
How important is tax software integration with your bookkeeping app?
1 – Not important 2 – Might be helpful 3 – Essential for tax preparation 
Is it essential/ important to have budgeting and goal-setting features built into the app? 
1 – Not really, I can manage budgeting on my own 2 – Basic budget categories would help3 – Clear budgeting & goal setting features needed 
Do you plan to use the app for invoicing?
1 – Not required 2 – Occasional use 3 – Need to create and send invoices regularly 
How frequently do you need the app to sync with real-time data (e.g., bank transactions)?
1 – Periodic updates are fine 2 – Daily updates sufficient 3 – Need up-to-the-minute data 
What is your level of comfort with apps and software?
1 – Comfortable with complex software 2 – Moderate complexity OK 3 – Need very user-friendly interface 
Which of the following best describes your budget considerations?
1 – Need a free or low-cost solution 2 – Can pay for a moderately priced app 3 – Willing to invest in premium features 

Interpreting your results:

  • Add up your total score.
  • Divide by 14 to get your average score.
  • Use the guideline below to decide what kind of bookkeeping tool best matches your average score:
    • 1.0‒1.7: Consider basic, free or low-cost apps (e.g., GoodBudget, NerdWallet)
    • 1.8‒2.3: Best fit might be mid-range options (e.g., Quicken Simplifi, EveryDollar)
    • 2.4‒3.0: Explore advanced, feature-rich software (e.g., Quicken, QuickBooks Online)

Remember, this is a guide to point you in the right direction. Always review the specific features of each tool before making your final decision.

MS Excel as an alternative to bookkeeping apps

Microsoft Excel offers a flexible, customizable alternative to dedicated bookkeeping apps. With its powerful features and familiar interface, Excel can be an effective tool for managing personal or small business finances.

However, in order to use Excel effectively for bookkeeping, you need to ensure that you meet all (or nearly all) of the following prerequisite criteria.

Prerequisite skills for using Excel for bookkeeping

  1. Basic to intermediate Excel skills
  2. Familiarity with typing out functions and formulas
  3. Understanding of basic bookkeeping principles
  4. Ability to create and maintain organized spreadsheets
  5. Commitment to regular data entry and updates

Excel vs. bookkeeping apps comparison

If you have sufficient familiarity with Excel and a sound understanding of basic bookkeeping principles, then there are a host of advantages to using Excel over conventional bookkeeping software:

  1. Cost

Excel can help you save $$, as it requires a one-time purchase rather than an ongoing subscription.

  1. Customizability

You can configure your bookkeeping completely as per your requirements, to suit the needs of your home or business.

  1. Control

Since Excel can be operated locally, without the need to sync with a cloud-based app, this allows you to secure and control who gets access to your financial data.

  1. Advanced reporting

Excel contains a suite of advanced graphics capabilities, allowing you to generate an array of visualizations to tell the story of your finances.

However, there are some limitations to relying on Excel for maintaining your financial records. Consider the following list carefully.

  1. No built-in safeguards against common bookkeeping mistakes
  2. Requires discipline to maintain regularly and accurately
  3. May become cumbersome with complex or high-volume transactions
  4. Limited real-time collaboration features compared to cloud-based solutions
  5. Responsibility for creating and maintaining backup systems falls on you
  6. May require additional time and effort to set up initially and to create reports

In sum, Excel can offer a powerful, flexible and cost-effective solution for your personal and small business bookkeeping needs, but only if you’re comfortable with the level of skill it demands, as well as the initially effort-intensive process of setting up your system.

DIY Bookkeeping: Basic Principles, Tips and Tools

The idea of maintaining accurate records of your personal finances can seem like a tall order, at least at first. 

However, by understanding and applying these fundamental principles, you can ensure that you’re off to a sound start. What’s more, getting the ground rules right will help you chart a course where it’s mostly plain sailing later.

The 4 cardinal principles of personal bookkeeping

  1. The double entry rule

Back in the day, students taking bookkeeping courses would parrot this rule until they had it memorized:

For every debit, there must be a credit.

Teaching methods may have changed, but the importance of this rule hasn’t. 

Simply put, the double entry rule ensures that in bookkeeping, every transaction is recorded in two accounts: One reflects where the money went out and the other reflects where the money came in. 

Example: If you bought a $1,000 sofa from Big Lots using your credit card, you'd make two entries—a debit of $1,000 to your “Furniture” asset account (increasing its value), and a credit of $1,000 to your “Credit Card Payable” liability account (increasing what you owe). 

This way, your books remain balanced while accurately reflecting both the new asset and the corresponding debt. 

  1. Clear and complete journal entries

While many modern accounting software systems automate entries for common transactions like sales or purchases, journal entries are crucial for recording transactions that don't fit into these automated categories.

Every journal entry should include a date, accounts affected, amounts, and a clear description of the transaction.

Example: If you have an annual subscription of $1,200 for your home internet connection that you paid on the 1st of January, you'd initially record the $1,200 payment as a prepaid expense (an asset) and subsequently make monthly adjusting entries to move $100 ($1,200 ÷ 12 months) from the prepaid expense account to an insurance expense account.

This would then accurately reflect the fact that while you paid the full amount upfront, from an accounting perspective, you didn't “use” it all up at once. 

  1. Categories and sub-accounts

Develop a set of accounting categories that reflects your unique personal situation and stick to it. When a category is complex, use sub-categories or sub-accounts if you think you’ll need more detailed tracking. 

This’ll let you keep your main accounts uncluttered, while still giving you all the info you’ll need later (for example, at tax time).

Example: For your “Food” category, you could create sub-accounts like “Groceries,” “School Lunches,” and “Dining Out.” This would allow you to track overall food spending while also monitoring specific areas, helping you understand where your food budget is going and potentially identifying areas for savings.

  1. Regular reconciliation

Match your books with bank statements regularly – ideally every month, but if not, at least once every quarter. Leaving things till the end of the year is a recipe for trouble.  Any discrepancies should be investigated and resolved promptly.

The 4 cornerstones of bookkeeping for small businesses

If you’re maintaining the books for your small business, then you need to follow all of the principles outlined above. Plus, you need to make sure your bookkeeping practices are in line with the guiding principles outlined below. 

  1. Keep business and personal finances separate

This is not just an organizational guideline; it's a cardinal rule of bookkeeping. Mixing the two can lead to serious accounting and legal issues.

  1. Cash vs. profit

Cash flow and profit are distinct concepts. This distinction can be problematic for rookie business owners to grasp. A profitable business can still face cash flow problems if receivables aren't collected promptly.

Example: Marge is a talented baker who supplies delicious muffins and bagels to the local supermarket. In June, she sells $2,000 worth of baked goods to the supermarket, which agrees to pay in 30 days. She also spends $800 on ingredients and utilities (electricity).

Her profit for June is $1,200 ($2,000 – $800). However, her cash flow for June is negative $800, because she's paid for supplies but hasn't received payment for the sale yet. 

Despite being profitable, she might struggle to pay for ingredients and elec for July's production if she doesn't have cash reserves. 

  1. The Accrual Method and the Matching Principle

What these cryptic-sounding terms actually mean is explained below. 

The ‘accrual method’ is a rule for recording income when it is earned and expenses when they are incurred. Don’t wait until the money changes hands. This provides a more accurate picture of your financial position.

Likewise, the ‘matching principle’ is an approach where expenses are recorded in the same period as the related revenues. This ensures your financial statements accurately reflect your business activities.

Example: In the earlier example, Marge correctly entered “$800” as her business expenses for June. She also entered, quite correctly, “$2,000” as her profit for June, despite the fact that she hadn’t been paid yet. If she had decided to wait until the end of July to record the revenue of $2,000, this would mess up her books, since July entries would misleadingly include income earned in June.

  1. Don’t mix asset purchases and expenses

Large purchases that will benefit your business long-term should be recorded as assets, not immediately expensed. Keep in mind, though, that these assets depreciate (or appreciate, in some instances) in value over time, and this should be reflected in your accounts. 

Example: Going back to Marge, if she bought a van for $4,000 to help deliver her baked goods to more supermarkets, she would need to record this as a debit under her “Capital assets” account (and, of course, credit her business credit card account for the same amount). Then, she would need to calculate the depreciation value of the van each year and enter it as a deduction against the vehicle’s value on the books for the previous year.

Paper and pencil bookkeeping: A simple solution for personal finances

For an individual or a household that wants to track its finances, a simple two-book system can be an effective method:

  • Income and Expense Ledger – A single book where you record all money coming in and going out. Each entry includes the date, description, and amount. 
  • Budget Book (optional) – A separate notebook for planning and tracking monthly or annual budgets.

The major advantage of setting up such a system, particularly for those managing finances for the first time, is that it’s a powerful means of creating and reinforcing awareness about spending. Another obvious plus is the lack of reliance on technology or special knowhow for setting up or implementing this system.

On the flip side, however, paper and pencil bookkeeping tends to be labor-intensive and time-consuming. Also, it is typically more difficult to generate summaries or to spot trends.

Example: An app or spreadsheet template with graphed data can quickly reveal the fact that a family spent 2x their average monthly expenditure on dining out in the last quarter, whereas this might require a fair amount of work to figure out manually.  

Thus, traditional (paper and pencil) bookkeeping is really only recommended for those who are very particular about using a hands-on approach, or for those who’d like to use it for a brief period to develop a better understanding of the inflow and outflow of their money.

Bookkeeping tools and templates for beginners

For those new to bookkeeping, there’s a wealth of user-friendly tools and templates out there that can simplify the process. 

From video tutorials on using bookkeeping apps to templates for setting up DIY spreadsheets, these resources can help a newbie bookkeeper set up and maintain accurate financial records. 

Resources for apps and softwares

As stated earlier, bookkeeping apps usually have a number of built-in features that simplify the process of understanding and entering one’s information. 

In addition, most app makers offer both blog and video tutorials to get users started. For instance, this YouTube channel has a slew of tutorials on using the mobile-based Quicken Simplifi app.

Or you could check out this in-depth tutorial on using the more comprehensive, PC-based Quicken software from PlayLouder’s founder, Joe DeSanto.

DIY spreadsheet templates

If you decide to go the Excel route (or Google Sheets, Open Office or Libre Sheets, for that matter), there are a host of super-useful, downloadable templates that’ll help you set up your system. The best part? They’re free!

You could explore these to begin with:

  • To set up a really basic system for an individual’s budgeting and expense tracking needs, check out this Excel-based spreadsheet, along with the helpful demo video.
  • A similar resource for the entire family’s budgeting and expense tracking can be found here.
  • This video tutorial and accompanying Excel-based template offers an amazing resource for those looking for more advanced household bookkeeping that clearly demarcates earning and spending categories, as well as including useful features for comparing projected with actual income and expenses, as well as for longer-term financial planning.
  • Finally, the Beginner Bookkeeper site offers a set of easy-to-use templates for the multiple components for bookkeeping, including cash book, balance sheet, expense form and invoice. These can be adapted to suit the needs of both households and families.
I even made this amazing video to help you get started!

Next Steps: When Your Bookkeeping Needs Exceed Your Bandwidth

Now that you’ve got a good handle on the basics of bookkeeping, as well as a roadmap for the software and templates you could use, you’re ready to dive right into it. On the other hand, having gauged the complexities, if you’re finding that you’re not ready to take on the challenges right now, just drop us a line at PlayLouder to see how we can help you set up a customized bookkeeping solution that is tailored to your needs. Let us handle your bookkeeping nitty-gritties, so you can focus on what you do best.