Why I keep business-style books on my own household

Each year now I prepare a tax return that nobody asked for. It is a return on my own household.

In the last few years I have connected my personal bank accounts and credit cards to Xero, the accounting software, and started treating my household like a business. I keep the books on my own life. At the year end I do an imaginary tax return: what came in, what went out, and am I happy with the net income left over?

I describe it myself as "maybe OTT but it's really helping me". It is a habit I wish I had started sooner, and I think most people would benefit from some version of it.

Your household already has a profit figure

Most of us know our salary to the pound and roughly what the rent or mortgage costs. Everything in between is a blur of card payments, direct debits and small transfers, each too minor to seem worth a second look.

A business cannot run like that, because profit is what is left after everything, not what comes in. A household is no different. Your income is the turnover. Your spending is the cost base. What is left at the end of the year is your profit, and it decides whether you are moving forward or standing still.

The difference is that a business is forced to work that number out every year. A household almost never does.

The monthly reconcile

The most useful part is not the annual figure. It is the monthly habit that feeds it.

Reconciling sounds like accountant's jargon. It is the same job as a bank reconciliation in a business: match every line on your bank and card statements to what it actually was, so nothing is left unexplained. Once a month, every payment gets a label: housing, food, transport, children, subscriptions.

The first time you do this properly, the subscriptions jump out. Streaming services, apps, memberships and free trials that quietly became paid ones. Each is small enough to ignore on its own. In a list, they are a different conversation. My one firm prediction for anyone who tries it: "You'll definitely cancel a lot of subscriptions once you start reconciling your numbers every month."

A payment you never look at is a payment you never decide on. The monthly reconcile turns each one back into a decision.

The year-end question

At the year end, the books answer three questions. What came in? What went out? Am I happy with what is left?

Then comes the part that makes it worth doing. I plan how to split what is left between investments, savings and leisure. Leisure belongs on that list. The point of knowing your numbers is not to stop spending. It is to spend on purpose.

Bills first, then see what is left

There is well-known advice to pay yourself first. I do not do that in my business. I pay the company's bills, the staff and the software, and what is left is my profit. That keeps the profit figure honest. The same test works at home: fixed costs first, then the real figure for what is left.

I also set myself salary goals: what I want to earn now, next year and in five years, and what I need to do to get there. A goal like that only means something if you know what your life costs to run, which the books tell you, and what a salary leaves after tax.

How to start without becoming an accountant

You do not need business software. A spreadsheet works, and some banking apps already sort spending into categories, which is a reasonable first pass. What matters is the routine, not the tool.

1. Bring every account and card into one place, so nothing sits outside the picture.

2. Once a month, give every transaction a category. A handful is enough.

3. Look at the subscriptions line on its own, and cancel anything you would not sign up for again today.

4. At the year end, add up what came in, what went out and what was left.

5. Decide in advance how that surplus splits between investing, saving and the things you enjoy.

The first month takes longest, because you are sorting a backlog. After that it is a short job. Start with last month's statements this weekend, and by January you will have a quarter's figures to look at.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and worked in finance roles in investment banking, wealth management and private equity, starting at Barclays, before leaving in 2020 to build the firm. He is a Chartered Management Accountant (ACMA, CGMA).

Image: Zmartly.