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Where Does It All Go? – Understanding Income and Expenses

How many times have you gotten to the end of the month and wondered – where in the world did we spend all of our money?  Don’t fret, you are in very good company as a vast majority of families do not have a firm handle on their income and expenses.

Rule #2 – Financial independence can only be achieved when you have a clear understanding of your income and expenses.

The second step to financial independence is to obtain a clear understanding of all of your sources of income and expenses.  Sound daunting?  Don’t worry, it’s not so bad once you start.  There’s a few different tools you use to capture your income and expenses:

  • Use a tracking program such as Mint or Quicken.  Mint’s an online resource that will allow you to enter all of your income and expenses.  Further, it allows you to electronically link your bank accounts and credit cards.  Finally, it’s free!  Quicken is a software program that runs around $50.  Like Mint it allows you to track all of your income and expenses.  Quicken’s a program that runs on your PC – some folks like this / prefer NOT to house their information on the internet.  Both of these are great choices to begin tracking.
  • Use a spreadsheet such as Excel.  You can create a basic spreadsheet in Excel (or use the template that is provided here) to track all of your income and expenses.  It’s not quite as automated as Mint or Quicken, but it will do the trick.
  • Paper and pencil.  There’s nothing wrong with an old fashioned sheet of paper and pencil.  You can create a simple table to record all of your income and expenses.

The information you collect should be the following:

  • Date of transaction
  • Store or business where the transaction took place
  • Category of transaction
  • Method of payment or income (e.g. cash, Visa, AMEX, salary etc.)

For the ambitious out there, you can go back through your bank statements, credit card statements, and paycheck stubs for the past three months.  The less motivated can start with the current month and build a history over time.

After you pull together three months of spending and income data, take a look at what you see.  Some key questions to ask:

  • Is your spending in excess of your income?
  • Are you surprised by any of the spending categories?
  • How much did you save?
  • Do you feel like the way you are spending your money is consistent with your goals?
  • Are there any things that “jump out at you” / make you feel like you should be changing something in the way you earn, spend or save?

ACTION ITEM – Capture three months of income and expense data and review the data to see if you are earning, spending and saving in accordance with your goals.

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Curt Stowers

Curt Stowers

Curtis Stowers helps individuals and families across the United States grow their financial assets, particularly in the Naperville, IL region. He is a Certified Financial Planner, holds a Ph.D. in Industrial Engineering from the University of Illinois, and is the founder of F5 Financial.