Use Accrual Accounting For Better Personal Finances
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Did I just write an article on the importance of budgeting and overcomplicate it? LMAO!
I also made the subscriptionification of everything make sense since companies have an incentive to factor these in. Oh fuck.
One thing that has greatly affected the way I think is Strong Towns (with the book of the same name). It’s a story for another day but while it does boil down to “the way we make cities today such that they rely on cars sucks and causes many problems”1, the main idea is that the way that America (and possibly other cities) develop is financially unsustainable even though it generates a lot of financial transactions. This is disguised by the way because they use cash accounting instead of accrual accounting.
This means that instead of factoring the cost of maintainance and replacing infrastructure as you would a pension obligation, they only factor them in once the bill comes due. For this reason, they are gradually unable to maintain the city without a constant influx of cash from new development
| Item | Cost |
|---|---|
| Registration | $150 |
| Insurance (Comprehensive) | $300 |
| Service | $300 |
| Repairs and Maintainance | $400 |
| Fuel | $1,200 |
| AAA | $90 |
| Total Annual Cost | $2,340 |
That’s $195 per month! Not to mention you’ll need to replace the car and you don’t want to make an impulsive choice once you need to. This puts your purchases in a whole new perspective as it forces you to realize the actual cost before it’s due. This helps you determine if you can truly afford something.
Take something simpler, a phone. I have an iPhone 12 Pro Max that cost $1,500. Were I to fix it at Apple, that’s $700 each time at most (since they replace it) and that might happen twice in the lifetime of the phone, about 5 years. Total ownership cost of $2,900, nearly $50/month2!
If you look at your salary or income streams and compare it to what you own, the things you own look and want to do are a whole lot more expensive than they first appear. While it’s more complicated than this (the thing you replace won’t be worth nothing for one), but it’s a good first step to living within your means.
Honestly, writing this article was incredibly painful as it made me realize just how unsustainable my lifestyle is as well as just how poorly I’m paid, which will be the next thing.