So in the digital age, the question becomes “How does one keep track of one’s budget without breaking that same budget?” I’ve used a program called GnuCash for this purpose for the past four years or so.

There’s one big thing which turns off some people, maybe even a lot of people, from GnuCash. That “thing” is the concept of double-entry accounting, which is intimidating to non-accountants but actually relatively easy to grasp. To those that have been using something like Quicken (which uses a category system) it can be a bit confusing and backwards at first. But it’s really based on a simple concept, and that simple concept is: the entire ledger adds up to zero. Put another way, for every transaction there is an equal and opposite transaction (with apologies to Sir Isaac Newton).

Unless you’re starting out flat broke, you will probably have a non-zero net worth when you begin using accounting software of any sort. Even these come from another account in the system, called an equity account (the default GnuCash setup uses “Equity:Opening Balances”). When the books are closed out for the year the ending balances go back into an equity account.

You may be used to Quicken’s use of categories. In GnuCash, the same income and expense tracking is done with accounts. A paycheck or check from a client will come from an income account and go into a bank account. Expenses will go into an appropriate expense account. Liabilities such as credit cards or loans are tracked with a liability account. The value of fixed assets can be tracked with an asset account; it is acceptable to include only the most expensive items such as a house or vehicle (full value can be included, as the liability account for the loan would count against your total net worth in a net worth report).

Now, there are times when you will have money coming back out of an expense account, or even money going back into an income account. Take the following situation: You go shopping for new clothes, and the total comes out to around ¤300. Only after getting home do you realize one of the three pairs of shoes you bought have a defect. You take the shoes back and get a refund of ¤40. That refund would come out of the appropriate expense account. This holds true no matter how you paid for a purchase, whether by credit card, debit card, cash, or check.

A similar situation would occur if (horror of horrors) you are paid with a bounced check that winds up being no good; in this case, it would go back into your income account. Likewise, for reimbursements of expenses incurred while on a company trip, the reimbursement check should be applied first to the expense account first charged to; the ideal solution for frequent travelers would be to set up an “expenses pending reimbursement” asset account (as the expenses the company is reimbursing you for are in fact a debt from the company owed to you).

What about expenses that are one line item on a bank statement, but go into more than one expense account (personal care items bought at a grocery store instead of making a separate trip to the drugstore later)? That’s where split transactions come in. A grocery store trip totalling, say, ¤75 with ¤20 of that being personal care items can thus be accounted for properly. Cash back on a debit card transaction is handled the same way, except the other account is a cash account.

The benefit of double-entry accounting is that finding out how much, say, one’s grocery expenses are total, year-to-date, is as simple as opening up that account. For last month? Just subtract the balance from the balance from a month ago. Is it a bit more effort? Maybe, at first.

GnuCash also includes a financial calculator for figuring out loan payments or other interest transactions, as well as a reconcile feature for verifying the accuracy of bank account and credit card account statements.

Far from the least of GnuCash’s advantages is that GnuCash is available as free software under the GNU General Public License (free as in freedom). This means two important things: there are no licensing fees for GnuCash and never will be, and any GnuCash user is free to download the source code to add features or fix bugs, or hire the programmer of their choice to do so on their behalf. See http://www.gnu.org/philosophy/ for more information about the philosophy of the GNU Project and the Free Software Foundation.