A Household Ledger is a key tool for personal finance management. It builds awareness of what you’re spending and how much. Done correctly, it will also make it easier to calculate your total spend by category at the end of the month.
The idea of a household ledger for personal finance comes from the Japanese Kakebo – which literally means household ledger, and was popular during WW1 when Japanese housewives were scraping pennies to keep the funds flowing in their families.
Let’s get into more about what this tool does, and how it will help you meet your financial goals.
What is a Household Ledger?
In accounting, a ledger is a book of accounts. Within each account is a list of transactions. If you translate that to personal use, your “book” of accounts contains only one account: your household spending.
That is, unless you have multiple bank accounts that you regularly spend funds out of. But for this exercise, let’s keep thing simple.
A Household Ledger is a list of everything you’ve spent, line by line, day by day. Bought a package of bath bombs on Amazon? Put it on the list. $350 on your latest trip to the grocery store? Put it on the list.
When you list a purchase in your Household Ledger, make sure you include columns for the following:
- Date
- Who you bought it from, e.g. Amazon, Whole Foods, Macy’s, etc.
- Category – this should match a category within your budget worksheet
- Amount – the total amount spent on your receipt, including tip when appropriate
- Flag
The flag column is where you add an X if you made a purchase outside of your monthly budget. Flagging these kind of purchases will help you review your spending habits and improve over time.
I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.
-Steve Martin
Benefits of Keeping Household Ledger
Teaches you about your spending habits
By recording all of your transactions each day, a household ledger forces you to be awareof what you are spending. You will come face to face with all reckless spontaneous purchases. You can start comparing your grocery bills. Ask questions like, “why did I spend $200 this week, but last week was only $150?”
keeps you engaged with your money GOALS
Taking time to track every transactions may seem like menial work. A waste of time. Its not.
Every moment you spend on your money goals helps you stay engaged and focused. Remember that every time you succeed with money goals your wealth, credit score, and opportunities to follow your lifestyle goals increases.
Makes it easy to compare actual spending with your budget
There’s an easy way to use your household ledger to compare your actual spending to your budget. The key is to assign every purchase a category that matches one of your budget categories.
For example, if you spend $250 on groceries at Walmart, use the category “Groceries” or “Food”, or whatever you call it in your budget. When the month is over, add up all of your purchases labeled “Groceries” and you’ll have a total to compare to your monthly budget.
By comparing your actual results to your budget, you can find areas where you can improve your spending. Another outcome is to increase your budget in certain areas where it isn’t possible to spend less. That should lead you to creating adjustments in other categories of your budget where you may need to tighten up spending.
Best Practices for Keeping a Household Ledger
For best results when keeping a household ledger, do the following:
- Assign categories to your purchases for easy comparison of spending to prior periods
- Flag purchases to reduce or eliminate next time
It doesn’t have to be complicated – you can use a basic notebook, if that helps you get started.
If you really want to up your game, use an excel spreadsheet. With a couple of clicks, you’ll be able to summarize your purchase totals by category at the end of each month using a pivot table.
Try keeping a household ledger for a few months, and watch how your money habits improve over time.
Free Excel Template
To track your expenses in Excel, download my free Household Ledger spreadsheet to get started.
