Bookkeeping is the first step toward financial success
Do you know that over 55% of Americans live paycheck to paycheck? Many people think only mid-to-lower income earners live paycheck to paycheck. However, the truth is that 16% of American adults with annual incomes from $100,000 to $199,000 live paycheck to paycheck. I have heard many stories of high-income earners like software engineers who spend most of their income, have no savings, or even live based on credit card debts.
As you see, income is not the only indicator that determines the health of your financial situation. How you manage your money makes a way bigger impact. That is why personal finance and budgeting are essential. To do that, you need to understand your situation first. Bookkeeping is the first and most critical step in helping you know your income, assets, and how you spend your money. Many people think bookkeeping is only for accounting and tax purposes, which is incorrect. Without an account book, it would be hard to answer important questions such as
- Can I afford to buy a house? How much can I afford?
- If I apply for this credit card, can I spend the required amount in the next N months to get the reward? What are those spending I can move to this card?
- If I got laid off, how long can I survive before I find the next job?
As a business owner, likewise, you want to answer many questions to help you make the right decision for your company, such as
- Can we afford to hire another employee? How much can we afford now?
- How long can my startup last before we need to raise the next round from VC?
- What are my server costs, and what can I reduce?
Many people also think bookkeeping is too complicated for people without an accounting background, but this is false. Depending on the purpose of bookkeeping, indeed, if it's for tax purposes, there are tax laws you need to understand to book it correctly. However, if it's only for personal finance or budgeting, it's easy and only requires elementary school math.
Why choose open-source software over proprietary ones
Now that we understand bookkeeping is important, the next question is how. Many people's first impressions of personal finance, budgeting, and bookkeeping came from proprietary accounting or budgeting software like QuickBooks, Xero, Mint, and YNAB. Countless less well-known bookkeeping & budgeting apps are also available in app stores. Choosing the right one from thousands and thousands of options is already challenging, and many proprietary software applications are expensive. They may only be affordable to some people or businesses.
Worse than the countless choices and high price tag, they all share one major drawbackâthey are proprietary software, so your critical financial data will be locked in with the vendor. If the app developer decides not to support the software or even stops the service, your account book could be gone with them. Or, if another company acquired it, you might be forced to use an unfamiliar new app. For example, CreditKarma acquired Mint, then shut down Mint and forced millions of Mint users to use CreditKarma instead.
Many financial apps offer discounts for signing up. They know that getting out of their system will be challenging once you use it. Maintaining your account books requires effort, so you should only use an open-source solution. You certainly want to avoid relying on proprietary software and ending up with a vendor-locked-in situation. Another reason to use open-source software is that it is free, and you can customize it.