Personal Finance
18 Oct 2018This is a tutorial on how to manage personal finance using
ledger. The reader is assumed to have a
good knowledge about how to use the command line. The basic idea is
that you write down all the transactions in a file named
personal.ledger and then use the command line program ledger to
generate various kinds of reports.
Double-entry accounting
Ledger follows the double-entry accounting system. In simple terms, it is a journal which tracks the movement of money from debit account to credit account. Let’s assume you are a salaried employee and make 100,000 INR every month. In ledger, a transaction is represented as
2018/01/01 Salary Income:Salary -100,000 INR Account:Savings 100,000 INR
Here Income:Salary is the debit account and Account:Savings is the
credit account. The date at which the transaction took place and a
description of the transaction is written in the first line followed
by the list of credit or debit entry. Account name could be
anything. The : in the account name represents hierarchy. Its use
will become more clear when we look at the reports generated by
ledger. The sum of the balance of all the accounts must be zero.
~/finance $ ledger -f personal.ledger balance 100,000 INR Account:Savings -100,000 INR Income:Salary -------------------- 0
We now know enough basics to get started. For simplicity, I am going to just show entries for 3 months.
2018/01/01 Salary Income:Salary -100,000 INR Account:Savings 100,000 INR 2018/02/01 Salary Income:Salary -100,000 INR Account:Savings 100,000 INR 2018/03/01 Salary Income:Salary -100,000 INR Account:Savings 100,000 INR
The total balance in the savings account can be reported by
~/finance $ ledger -f personal.ledger balance Account:Savings 300,000 INR Account:Savings
Asset
A person’s net worth is calculated by the formula
Net worth = Assets - Liablities
In a ledger file, each of these assets should be represented by a separate account. Let say 12,000 INR of your salary goes to EPF, we could represent it as follows.
2018/01/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR 2018/02/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR 2018/03/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR
There can be multiple credit entries in a transaction as long as the credit and debit sum up to zero. Let’s say you invest 5,000 INR every month in the PPF account, it could be represented as follows.
2018/01/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR 2018/01/01 Investment Account:Savings -5,000 INR Asset:Debt:PPF 5,000 INR 2018/02/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR 2018/02/01 Investment Account:Savings -5,000 INR Asset:Debt:PPF 5,000 INR 2018/03/01 Salary Income:Salary -100,000 INR Account:Savings 88,000 INR Asset:Debt:EPF 12,000 INR 2018/03/01 Investment Account:Savings -5,000 INR Asset:Debt:PPF 5,000 INR
The money moves from your savings account to ppf account. Your current net worth could be reported by
~/finance $ ledger -f personal.ledger balance Asset 51,000 INR Asset:Debt 36,000 INR EPF 15,000 INR PPF -------------------- 51,000 INR
Interest
The interest credited by the bank could be represented as another transaction. If the bank credits the interest at the end of the financial year, it could be represented as
2018/03/31 Interest Income:Interest -15,000 INR Asset:Debt:PPF 5,000 INR Asset:Debt:EPF 10,000 INR
~/finance $ ledger -f personal.ledger balance Asset 66,000 INR Asset:Debt 46,000 INR EPF 20,000 INR PPF -------------------- 66,000 INR
Commodity
Let’s say you are also investing 10,000 INR on UTI Nifty Index Fund and 10,000 INR on ICICI Nifty Next 50 Index Fund every month. Mutual Fund can be considered as a commodity which could be converted to currency.
2018/01/01 Investment Account:Savings -25,000 INR Asset:Debt:PPF 5,000 INR Asset:Equity:NIFTY 148.0865 NIFTY @ 67.5281 INR Asset:Equity:NIFTY_JR 358.6659 NIFTY_JR @ 27.8811 INR 2018/02/01 Investment Account:Savings -25,000 INR Asset:Debt:PPF 5,000 INR Asset:Equity:NIFTY 140.2870 NIFTY @ 71.2824 INR Asset:Equity:NIFTY_JR 363.2242 NIFTY_JR @ 27.5312 INR 2018/03/01 Investment Account:Savings -25,000 INR Asset:Debt:PPF 5,000 INR Asset:Equity:NIFTY 147.5908 NIFTY @ 67.7549 INR Asset:Equity:NIFTY_JR 378.4323 NIFTY_JR @ 26.4248 INR
Let’s consider 148.0865 NIFTY @ 67.5281 INR. Here NIFTY is the
name of the commodity and we have bought 148.0865 units at 67.5281 INR
per unit.
ledger by default reports the commodity without conversion.
~/finance $ ledger -f personal.ledger balance Asset 66,000 INR 435.9643 NIFTY 1100.3224 NIFTY_JR Asset 66,000 INR Debt 46,000 INR EPF 20,000 INR PPF 435.9643 NIFTY 1100.3224 NIFTY_JR Equity 435.9643 NIFTY NIFTY 1100.3224 NIFTY_JR NIFTY_JR -------------------- 66,000 INR 435.9643 NIFTY 1100.3224 NIFTY_JR
To convert the commodity to current market value, we have to supply
the current price of the commodity. AMFI publishes the latest NAV
values. Save the
following text in a file named price.db
P 2018/10/26 00:00:00 NIFTY 65.6193 INR P 2018/10/26 00:00:00 NIFTY_JR 23.0733 INR
~/finance $ ledger -f personal.ledger --price-db price.db balance --market Asset 119,996 INR Asset 66,000 INR Debt 46,000 INR EPF 20,000 INR PPF 53,996 INR Equity 28,608 INR NIFTY 25,388 INR NIFTY_JR -------------------- 119,996 INR
The same approach could be used for other commodities like gold, stocks etc.
Gain
Gain or loss based on the commodity value in the price.db can be calculated as follows.
~/finance $ ledger -f personal.ledger --price-db price.db balance --gain Asset -6,004 INR Asset:Equity -1,392 INR NIFTY -4,612 INR NIFTY_JR -------------------- -6,004 INR
Register
The list of all the transactions related to an account and it’s running total could be reported by the register command.
~/finance $ ledger -f personal.ledger --price-db price.db register --market Asset:Equity 18-Jan-01 Investment Asset:Equity:NIFTY 10,000 INR 10,000 INR Asset:Equity:NIFTY_JR 10,000 INR 20,000 INR 18-Feb-01 <Revalued> 430 INR 20,430 INR 18-Feb-01 Investment Asset:Equity:NIFTY 10,000 INR 30,430 INR Asset:Equity:NIFTY_JR 10,000 INR 40,430 INR 18-Mar-01 <Revalued> -1,816 INR 38,615 INR 18-Mar-01 Investment Asset:Equity:NIFTY 10,000 INR 48,615 INR Asset:Equity:NIFTY_JR 10,000 INR 58,615 INR 18-Oct-26 <Revalued> -4,619 INR 53,996 INR
Allocation
The allocation of money across different assets could be reported as follows.
~/finance $ ledger -f personal.ledger --price-db price.db balance --market --percent Asset 100.00% Asset 55.00% Debt 69.70% EPF 30.30% PPF 45.00% Equity 52.98% NIFTY 47.02% NIFTY_JR
This is just the tip of the iceberg. Checkout out the ledger manual for further details.