Advanced Accounting for Personal Gain

Managing one's own finances can be simple. For those ready to augment their personal accounting education, Dayana Yochim breaks down an analyst's most important tool: ROVE (Return On Vacation Expenditures).

Format for Printing

Format for printing

Request Reprints


By Dayana Yochim (TMF School)
May 3, 2002

We've always encouraged Fools to be the CEO of You, Inc. After all, no one has a better handle on your personal balance sheet than you (and your cleaning lady, if she knows anything about deciphering Quicken printouts).

The traditional method of tracking inflows and outflows requires nothing more difficult than 3rd grade math. You simply add up all your assets, subtract your expenses, and -- voila! -- you get a figure that is startling in its puniness (yes, even the fifth time you calculate it).

But the CEO of Me, Inc. uses some of the sophisticated accounting strategies employed by the big boys of corporate America. Applying such high-level principles of bookkeeping to your own balance sheet requires a working knowledge of things like EBITDA (Earnings Before Improvements To Dated Accessories), ROIC (Return on Impulse Charges), and the ability to swiftly calculate "40% off the lowest marked price" while adding in the costs of alterations and dry cleaning.

To show these advanced accounting theories in practice, I'll use as an example my recent vacation to Surprise, Arizona (which is a funny name for a city, but not as funny as Jackass Acres or Hell, two other cities in the Sun Devil state).

Most people assume their biggest vacation expenses will be travel and room and board. Budget forecasting enabled me to cover the cost of airfare (a $272 non-recurring charge) with my flexible spending medical account reimbursement (deferred income). Basically, by taking a hit in the first through third quarters with regular pre-tax deductions from my paycheck and then not turning in my medical receipts until last week, I made up for the fourth-quarter deficit with the windfall. (Let me know if I'm going too fast here.)

Through my connections, room/board and ride were all free. (It helps if the parents of your best friend from high school own a vacant vacation home.) That's a savings of $500 for six nights (I'm being conservative) and $33 a day for transportation, which means that I started my trip $698 in the black.

Since I packed light (three pairs of shorts, four T-shirts, two skirts, a skort, a pool coverup, sweatshirt, cardigan, two bathing suits, clogs, hiking boots, three dresses, and assorted hair accessories and sun-blocking creams), I anticipated the need to augment my wardrobe to accommodate the foreign Arizona climate. This is important: You must include seasonal variances and unplanned expenses in your personal 10-Q. But they need not break the bank. If you save your receipts, discuss work over appetizers, and the total tab adds up to 4% of your income, you can write it off. (Though you may want to look that up before you file.)

No sooner did I arrive than I discovered the first shortfall in my plan. Unfortunately, the sunglasses I packed at the last minute had fallen out of my suitcase. (That's the LIFO -- Last In, First Out -- method of packing, for those taking notes.)

Luckily for us, there was a Target nearby. With the free cash flow from my operating and investing activities -- most notably the proceeds from the sale of property at a garage sale -- I acquired sunglasses, two cotton dresses, a white blouse (to augment the aforementioned sun block), a really cute tablecloth, Twizzlers, a straw hat, and some PJs.

Now, most people would simply calculate the real price of these purchases, come up with a total of $112.57, and chalk it up as a capital expenditure. But that's cheating yourself. Me, Inc. uses a sliding-scale system that takes into account frequency of use, percentage on sale, current items that match it, and the sum of future returns.

For example, the $5 Target blouse enabled me to free up $30 in cash I would get back by returning the $35 white blouse I purchased at the Gap before the trip. That $30, applied to two pairs of kicky capri pants that were criminally inexpensive, put my expenditures at $0. Expressed in math terms, the equation looks something like this:

$5 - $30 + $15 + $15 = Lots of free stuff!

See how this works? Since I've been doing this for a while, I was also able to accommodate deferred debt for items like a cute tablecloth and denim blazer that I'll wear in the fall. Those purchases won't show up on my balance sheet until next quarter.

Amortization is also a handy tool for advanced CEOs. A $69 pair of shoes comes out to pennies per wear if you amortize the cost of ownership over the life of the product, which you figure by estimating the amount of use and any depreciation. Unfortunately, the clogs I bought at Nordstrom before the trip were a bit too cumbersome for the sandy Arizona terrain and three-foot trek from the Jacuzzi to the wading pool. The $12.98 beaded flip-flops from Target became an operating necessity, like gas for day trips or a grande latte (skim) in the morning.

As you take the helm of You, Inc., remember that not all personal gains can be measured by the bottom line. For instance, I've noticed that since my vacation, my on-the-job productivity, overall morale, and sun tolerance is on the rise. Through patience, education, and the implementation of the FICO scoring system (Fiscal Ingeniousness Cures Overspending), Me, Inc. is in better shape than ever.

Analysts recently downgraded Dayana Yochim, Inc. to a "shun" rating. As of press time, she was sole owner of the company (which we are required to disclose here at The Motley Fool), though she will take bids from tall, dark, and hot co-executives.