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Personal Finance and Handling Money – An Owner/Operator Mindset

Many people believe money is the embodiment of material wealth and allegedly personal freedom. Regardless of our sophistication and education, we are typically swept up with this misrepresentation. We seek financial well-being anywhere we can find it. Those of us without real cash reserves or large disposable incomes mistakenly replace what we lack in funds with expensive lines of credit. We leverage what we have in order to acquire what we seek to possess.

Unfortunately many of us confuse what we want with what we believe we need. We accumulate indiscriminately. We oftentimes compound matters by purchasing material goods that have little or no long term value with leveraged cash obligations that increase over time. Herein is the beginning path of many a person to their eventual financial doom. Unfortunately in order to accumulate wealth in our society, we need capital. We need to grow our money through investments of appreciating value; we need discipline, luck, time, and a particular mindset.

Our personal response to money determines how successfully we can use it to the best advantage. Notice how the inherent concept in this last sentence was to USE money toward some further end. Money does not, in itself, give us wealth and freedom; it is actually only a vehicle to achieve it. We need to understand the emotions that affect our decisions about how we use money in order to improve ourselves and gain a greater prosperity and well-being. Few people would argue that if we ran our lives like a home-based business, our emotional approach as a successfully owner/operator to money would probably have a more utilitarian perspective.

The secret here is that money looks different to a business person; “capital assets” are used to finance business goals. Money is a “means” to some “end”. It is not typically perceived as personal reward. The successful sole proprietor of a home-based business tends to mentally separate what is in their “pocket” from what is in the “business operating account”. Similarly, lines of credit leverage the business’ capital resources to increase future financial returns. Responsible management means anticipating investment returns that will exceed the total costs of the credit used. If you run your life like a successful home-based business, you don’t charge your personal 10-day vacation on a credit card! Think of yourself not as consumer but potentially a producer of value. You take a 10-day business trip and, while there, develop new business contacts. Cash expenditures serve some financial purpose and are routinely goal-directed; money is spent to build value rather than just spend cash. This change in mindset especially in these hard times is a critical secret if one wants to gain financial success and personal freedom.

How is Bookkeeping and Accounting Different?

Working in the money part of a business is always confusing. Some people may call you the bookkeeper and others will say you’re in the accounting department. So what is the difference between the two?

First let’s take a look at accounting. This will help you to better understand what each is and what they do in a business. The accounting department is responsible for many things in a company. It tracks any and all financial transactions with a systematic record process. It performs reports and analyses all financial aspects of the company. The accounting department handles all incoming bills as well as outgoing,. There are some companies, usually smaller ones, which incorporate the bookkeeping method into their accounting.

Usually there is an accountant for the accounting department and they are responsible for overseeing the money for the business. They also take care of taxes for the company as well as any audits that may come up. They keep track of all assets for the company and all accounts receivable and payable.

Bookkeeping in a way is much like the word. All money transactions for a business are kept track of by a systematic method of record keeping. Bookkeeping, however, does not deal with analyzing the financial part of the company. It simply is a method of recording all of the financial transactions. The name bookkeeping came about as a result of all of the records being kept in a large book. The bookkeeper writes down all entries and then posts them to a ledger. This helps to track incoming and outgoing money for the company.

There may be some companies that still use the book method for their bookkeeping department but most companies use a software program meant strictly for bookkeeping. When money is tracked in this manner, you still need to keep up a cash book, a daybook and a ledger. When it comes to bookkeeping you will notice that there are two different kinds: single entry and double entry. Many companies like the double entry method as you have a way to double check your original entry. In single entry you are putting an entry in your book either under credit or debit and it is all under one account where a double entry you are putting the entry in twice, once on a main account but in the main account are pages for each individual account so that you may check your entries at any time to see that all adds up.

The way a company handles its finances mainly depend on how large or how small it is, both ways have their advantages and disadvantages. The larger the company is, you will find that they have an entire department devoted to accounting.