Accounting is one of the fundamental activities of any business. Without it, a company would be similar to a blind person driving a high-speed car. They may know how to do business, but they would be blind to important signals that Accounting can give them.
However, it is not only businesses that need Accounting for them to survive. Unbeknownst to many, even regular people like us are using it every single day. We use accounting to check our finances, manage our bills, and even for something as simple as buying groceries.
Surprised? Well, this simple explanation by Investopedia of what Accounting is may help you grasp the idea:
“Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities.”
Although it is specifically about businesses, by reading it, you should a hint on how it applies to our lives. Let us try to use this definition of Accounting on something we often do in our personal lives, namely groceries.
How We Use Accounting Everyday
When cooking something at home, the first thing we often do is check if we have any supplies left. If not, the next thing we’d do is list down all the items that we will purchase in the store.
After you get all the things you need, you proceed to the cashier to pay them the total price of your groceries.
Finally, you rigorously count your change to make sure that there is no overage or shortage. If you find any, you are most likely going to approach the sales person to correct the error.
We’re you able to identify which parts were actions you did were related to accounting? If yes, then good job! But if not, then here’s a simple explanation on how groceries is related to accounting. Summarizing; by looking at your refrigerator, you were already summarizing which items you will buy and which ones you will not.
Analyzing; the act of counting your change to know whether they gave you too much or too little is like an accountant investigating if their business is receiving the correct amount of cash or revenue (auditing).
Reporting; lastly, reporting is when you try to communicate your data to other parties. Hence, when you explained to the cashier that she gave you too much or too little change, you are reporting to her based on how you analyzed what you previously summarized.
With every choice we make, whether for major or minor decision, we are unconsciously using the principles of accounting. Hence, it is an inescapable part of everybody’s lives. Nevertheless, there are also other ways that you could apply accounting to make your life better or earn/save some more of that sweet, sweet money.
Other Ways You Can Apply Accounting In Life
Budgeting Your Money
Most companies hire accountants at the beginning of every business cycle to help them determine the best way for them to spend their existing assets. The reason for budgeting is that it would assist them to avoid wasting their money or resources due to poor planning.
Private people can use the budgeting principles in accounting to help them allocate their salaries. Furthermore, it could help them avoid unexpected shortages due to overspending. Budgeting our expenses are not just limited to long term things like education, or retirement, but also to things that you engage daily like your fare or meals.
Tracking Your Expense And Income
After we budget our expenses, it is important that we know how to follow through it by tracking how we spend our money. Tracking is more of a continuous action that we need to do every time money leaves or enters our pockets.
By tracking our expenses, we can adjust our budget accordingly to accommodate new plans or information that was not available when we first budgeted our money.
Saving For The Future
The best case scenario after budgeting and tracking your expenses is having some leftover money that you can save. Savings are the result of well-planned budgets and careful tracking of expenditures. It allows you have some leeway for next month for emergencies and unexpected expenses.
Furthermore, by being able to save some money, you can be more assured that there is a smaller possibility of you having financial crises.
Investing To Make More Money
Lastly, if you were able to save enough money due to following the first parts of this section, the best move for you is to invest it let your money grow on itself.
You can invest your money in passive investing platforms like stocks, forex, bonds and more. You also have the choice to start up a business that you think would help you make more money than you already have.
There are many options for an individual to invest, all of which will need for you to apply more accounting. Lastly, it is also at this point that you’ll need to start considering asking for the help of professional accountants.
Regardless of how you use accounting in your life, the Aldaris CPA Group is here to help you grow your potential. Contact us for our individual and family consulting services and let us show you how we can help you with your personal finances.