Maintaining books of accounts is not just a requirement for entrepreneurs but it’s also a necessity for salaried employees.
“Accounting was the course that helped me more than anything.” Julian Robertson
Yes, accounting is an important part of managing your finances. The reality is accounting is mostly ignored. Maintaining personal books accounts is a good practice. It is one of the key aspects of your wealth management irrespective of the size of your wealth.
Maintaining books of accounts tell you every year about:
- Your assets
- Your liabilities
- Your income
- Your expenses
This information is good in itself but with this information you can do an analysis of your personal finances. Some of the important analysis could be;
- Your assets/investments vs your liabilities. Do you own more than you owe?
- Your income vs your loan repayment obligations & expenses. Have you over borrowed?
- Your expenses and quality of your expenses. Whether any expenses could be shunned/ curtailed?
- Less productive assets vs more productive assets. This helps you in realigning your investments.
Like analysing business balance sheets and Profit & Loss accounts give many actionable insights to entrepreneurs, analysing personal accounts also give many actionable insights to individuals.
Key Benefits of Keeping a Book of Accounts
Some of the benefits of keeping books of accounts:
A Good Practice
Yes, books of accounts tell the story of your finances. You spend a lifetime to earn money but you do not keep a proper record of it. This is not a healthy practice.
To be responsible to yourself and your time, you need to maintain books of accounts. Maintaining important records is a good practice. Your finances are very important for you to maintain records.
“The word accounting comes from the word accountability. If you are going to be rich, you need to be accountable for your money.” Robert Kiyosaki
Be accountable to yourself and have a good practice of maintaining your accounts.
Status At A Glance
Maintaining regular books of accounts gives you your financial status at a glance. This helps in making important financial decisions.
Loans, credit cards dues, and various other liabilities make it pertinent for everyone to have a check on the finances.
You cannot make sound decisions without data. The financial data guide you to make informed decisions.
Whether you want to splurge or want to contain your expenses, your books of accounts will guide you for the right decision.
Valuable For The Family
Having a proper accounting record of your finances helps your family members too. In case any untoward incidence happens and you die, they know how much you own and how much are your liabilities.
They need not struggle to find out your assets. All your assets can be properly appropriated by your spouse or children without any loss. If you want to learn more about 5 ways you are mismanaging your money, keep reading.
Why is Maintaining Books of Accounts Important for Salaried Employees?
Maintaining books of accounts is important for salaried employees for several reasons:
- Tax Compliance: Salaried employees are required to file income tax returns every year. Keeping track of all income and expenses can help ensure that they comply with tax regulations and avoid penalties for non-compliance.
- Reimbursements: Many companies offer reimbursements for expenses such as travel, meals, and entertainment. Keeping accurate records of these expenses can help you claim reimbursements they are entitled to and avoid overpaying taxes.
- Budgeting: Maintaining books of accounts can help you track your expenses and manage your finances effectively. This can help them make better financial decisions and avoid overspending.
- Proof of Income: Maintaining books of accounts can serve as proof of income when you need to apply for loans or credit cards.
- Audit Trail: Maintaining books of accounts can provide an audit trail for you as a salaried employees in case their finances are ever audited by the government or their company.
Overall, maintaining books of accounts is essential for salaried employees to stay financially organized, comply with tax regulations, and make informed financial decisions.
You don’t need an accountant to maintain your accounts. There are many software available which are easy to use.
By maintaining your own books of accounts you also learn principles of accounting. This will also help in your professional life. Understanding accounts are the key requirements of financial success.
Many entrepreneurs do not understand accounts. They can’t analyse their finances for business benefits. This is a big handicap for their financial success.
“Accounting is the language of business.” - Warren Buffett.
Rather accounting is the language of finance. Everyone needs to understand this. By maintaining books of accounts you become literate in one of the very important subjects in the journey of your financial freedom.
Whether you maintain it yourself or have an accountant to maintain your books of accounts., understanding the accounts is your responsibility.
Maintain your books of accounts, learn accounting, and you will thank yourself one day.
You may also like to read: What should be the first investment from your first salary?
Swati Tumar - Travel & Finance Writer
Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.