Staying in Balance: Bookkeeping for College Students
The payoff won't be immediate, but consistent bookkeeping is the foundation for financial independence and one of the most important habits you can develop as a college student.
By Connor Daniels — April 3, 2023
Part-time jobs, scholarships, tuition, student loans, taxes, and day-to-day expenses-keeping track of your money can be one of the most stressful parts of college. It can also be one of the most rewarding! If you did not work during high school, college will the first time that you have had to keep track of your finances or make a budget. Don't make the mistake of putting off personal finance until after graduation-the best time to pursue financial literacy and freedom is now.
The first step in managing your money. Money management requires keeping track of how much you have and where it's going, and it is often the most overlooked. Lots of social media influencers share their advice on investing, passive income, or side hustles. But how do you keep track of that money, anyway?
This process is called bookkeeping. Bookkeeping is simple to learn, and several free software programs make opening your first set of books easy. Let's start with the basics.
Simple: Single-Entry Bookkeeping
The most essential part of bookkeeping is simply keeping track of how much money comes into your bank account (income) and how much money goes out (expenses). Single-entry bookkeeping keeps track of this information in a ledger, which today is usually kept in a spreadsheet or through an app. Each transaction is recorded on a new row. The columns of the ledger keep track of the date, what the transaction was for, and the amount, which will either go in the income column or the expenses column.
If you regularly enter your financial transactions into the ledger, you should be able to determine how much money you currently have by adding everything in the income column and subtracting everything in the expenses column from your initial balance. It's easiest to simply keep a running tab recording the current account balance in another column of your ledger.
Single-entry bookkeeping is simple to understand and easy to use, producing a record of your financial transactions that should look exactly like a bank account statement. This is the first step to financial independence: knowing how much money you have and where it's going. You might already have some questions. How do I keep track of money that I owe, such as student loans? What if I want to keep track of money in different accounts, such as multiple bank accounts, or money in the bank versus cash on hand? What if I make regular purchases with a credit card and then pay it off at the end of every month? Do I record the credit card payment or each individual purchase?
For a more complete picture of your finances, you might consider learning how to use double-entry bookkeeping to manage these details.
Advanced: Double-Entry Bookkeeping
First, you need to understand the concept of equity, or your net worth. Equity is simply the difference between your assets (money that you own) and your liabilities (money that you owe):
Assets — Liabilities = Equity
Keeping track of your financial transactions is really about keeping track of changes in your net worth over time by recording income and expenses. Adding those elements to the picture gives us the fundamental accounting equation:
Assets — Liabilities = Equity + (Income — Expenses)
To make it simpler to keep track of your transactions, this equation is often rearranged so that everything is positive:
Assets + Expenses = Equity + Income + Liabilities
In this form, everything on the left-hand side of the equal sign is called a debit balance account and everything on the right-hand side is called a credit balance account. Similarly, the left-hand column in your ledger is called the debit column and the right-hand column is called the credit column. The words "debit" and "credit" mean something different here than they do in common usage. Debit accounts are increased by amounts in the debit column, while credit accounts are increased by amounts in the credit column.
In the double-entry system, every transaction is recorded twice—as a credit in one account and a debit in another account. For example, if you paid $5.00 using your debit card for a cappuccino at your local coffee shop, you would record that transaction in in the right hand (credit) column of your assets account and in the left hand (debit) column of your expenses account, indicating that $5.00 had been added to your expenses and subtracted from your assets. If you paid for the same cappuccino with your credit card, the same transaction would be recorded as a $5.00 debit in expenses and as a $5.00 credit in liabilities. If you later paid off the credit card balance, that transaction would be recorded as a $5.00 credit in assets and a $5.00 debit in liabilities.
Though this system is more complicated to understand, it enables you to keep track of multiple different accounts and record the transfers between them more easily than the single-entry system. If done correctly, the sum of all the amounts in the debit column should always be the same as all the amounts in the credit column—the accounting equation always stays in balance, and you always know the state of your finances.
Software Options
If you consider yourself a DIYer who is comfortable with keeping track of numbers and understands these basic accounting principles, you could definitely set up a basic set of books using the single or double-entry system in Google Sheets or Microsoft Excel. There are even free templates available online to help you start!
However, if you want a little more help getting started (or easy access to more advanced features, such as income and expense charts), then dedicated accounting software might be best for you. While there are lots of options out there, here's a few to get you started:
Mint
is a popular personal finance app that makes keeping track of your money easy. Once you connect your online accounts to the app, Mint does the work of categorizing your income and expenses for you. You may still choose to manually enter cash transactions, but everything else updates automatically. Mint also provides access to helpful budgeting tools, tracks your credit score, and collects date into easy-to-understand charts. The best part—it's free! However, there are some downsides—some bank transactions don't sync properly, which means users may need to monitor transactions to ensure accuracy. In addition, the program does rely on promoting other financial services to its users in order to remain free.Quicken
has access to numerous advanced features for personal or business accounting, and, because it has been around for decades, finding support online is easy. As a result, Quicken might be the superior choice for someone who is thinking about starting a business or is interested in learning more about money management. However, the program is primarily for desktop use, and there is an annual fee for using the software.Gnucash
doesn't have the popularity of the previous two options, but it's my personal choice for keeping track of finances, as long as you're willing to take a more hands-on approach and manually enter your transactions. Although it has a much steeper learning curve than Mint and lacks the industry support of Quicken, Gnucash allows you to have more flexibility in setting up accounts and expense categories that make sense for you. Plus, unlike Quicken, it's free.Keeping it in Balance: Set up a Schedule
No matter what system or program you choose, the most important part of bookkeeping is discipline. Schedule a time each week or each month to update your books, resolve any irregularities, and take stock of your financial situation. If necessary, bribe yourself with that $5.00 cappuccino—it's worth it to keep your finances in order.
The payoff won't be immediate, but consistent bookkeeping is the foundation for financial independence and one of the most important habits you can develop as a college student. If you want to have a good intuition about your money, establish a reasonable budget, and save for the financial goals that are important to you, start by figuring out where your finances are today.
Connor Daniels
Connor Daniels teaches humanities to 7th through 12th grade students at Bloomfield Christian School in Bloomfield Hills, Michigan. In 2021, he graduated summa cum laude from Hillsdale College with a degree in history and politics.
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