Financial Fridays: Track Your Income and Expenses

Track your income and expenses on a computer or pencil and paper

Welcome to Financial Fridays #1! Over the next 7 weeks – every Friday from now until the end of 2017 – I’m going to share posts that will help you paint a picture of your financial life today and set you up for a prosperous 2018. We’ll touch on topics ranging from income and expenses to net worth, debt, career advice, and setting goals.

These are some of the steps Kristin and I have taken to help set ourselves up to be able to afford our dream wedding, dream house, and plan for early retirement. Of course, a healthy dose of privilege helps and I’d be remiss to not mention how fortunate we’ve been in that regard.

If you’re looking to make 2018 a better year financially than 2017, tune in every Friday for the rest of the year!

Why Fridays? Each post will have a set of actionable items that could be achieved easily over the course of a weekend!

Financial Friday 1: Track Your Income and Expenses

Where do you start? The beginning, of course.

While it may seem a bit clich√©, the fact is that shockingly few people have a true grasp of their real income and real expenses. Some people don’t even know where¬†they have accounts set up!

This can be a big problem when it comes to making financial changes. If you’re not sure of where you currently stand, it’s difficult to figure out how to make meaningful progress to fixing a bad situation, or reach your goals more quickly.

Map It All Out

For starters, write down all of your accounts you have and all of your sources of income you receive. Don’t leave anything out on this. You’ll need to use these lists to make sure you cover everything in the next few steps.

I like to make (and now revise) a Money Map for this process because I’m a visual learner. It helps as a good conversation tool with Kristin, too. She found it especially helpful when we started talking about partially merging finances.

How you want to actually map this all out – be it through a money map or just writing things down in a list – doesn’t matter. But make sure you’ve got everything written down.

Action: List or map out all of your accounts as they exist today. Be sure to add income sources as well.

Track Your Income

Tracking your income is vital. It’s important if you earn irregular income. If you’re a W-2 salaried employee with a consistent paycheck, this applies to you, too. Nobody’s off the hook.

For starters, consider a few things:
– Are you paid hourly or are you salaried?
– Are you paid every two weeks? Twice a month? Once a month? Randomly?
– What sort of side hustle money do you have coming in, if any?

The simple goal here is to tally up what you’re able to work with. You can remove taxes for this portion, but throw your 401(k) or equivalent contributions back in. This is considered part of your “take-home pay” but you’re automagically investing it – props to you.

Action: Track every source of (gross – tax) income you receive over the course of a month.

Estimate Your Expenses

Expenses are the other big thing to consider when evaluating your financial health. The key word on this step is ESTIMATE.

Don’t look at anything at all – just guess roughly how much you’re spending on miscellaneous stuff. Don’t worry about getting everything covered to the penny. At the same time, though, try to remember some of the infrequent expenses that come up.

And be sure to account for your automated saving, like your 401(k).

Why just estimate? The purpose of this exercise is to see how much you really know about where your money is going. It’s one thing to have a budget – it’s another thing entirely to actually FOLLOW your budget.

By estimating your expenses, you should hopefully get a closer look as to if your spending aligns with your values or not.

Action: Estimate how your money is being allocated.

Track Your Actual Expenses

Alright, so you’ve got an idea of where your money “should” be going, right? Let’s put that idea to the test. Simply figuring out where the heck you’re actually spending your money is important but often overlooked.

I’m going to admit something that may trigger some folks. Kristin and I don’t make a real budget. We have a good idea of where we want our money to go. Throughout a month we track where our expenses ACTUALLY go.

But we rarely actually make a budget. We review our target numbers on occasion and make sure we’re in the right ballpark, but aren’t meticulous about tracking in the moment.

Generally that works out well. Paula Pant refers to this as ‘anti-budgeting‘. Essentially take what you want to save off the top, and then spend the rest however you want. Doing this helps us make sure we’re maintaining an adequate savings rate for our goals without stressing the small stuff.

We don’t care about spending exactly $100 on going out to eat because we know that sometimes that’s less, and sometimes we have an impromptu dinner and several drinks with friends that ends up costing $117.

Regardless, every few months it’s a good idea to do a deep dive into your spending and see where you need to brush up. If you’re finding that it seems more difficult month to month, it’s definitely past due. Better to nip lifestyle inflation in the bud now. At a minimum, I do this every three months.

Why? Doing so helps me be aware of surprises. Did you know that Netflix started charging you more this month? It’s true – and yet this will go unnoticed on many people’s radars. Price increases happen and when they’re on subscription services – think cable (or alternatives), internet, cell phones, or streaming services – it’s easy to overlook these.

For us, I was surprised to realize how much money we actually spent on alcohol. Adding up all of our spending shed light on it, and it was actually quite a bit more than we’d anticipated. $15-$20 for a bottle of wine doesn’t seem like a lot in the moment – but three times a week that adds up to about $200/month. And that’s what we were doing.

The thing is, these expenses didn’t really align with what we valued. Sure we enjoyed having wine every now and then, but we were using it as a crutch to get through a shitty week at work when going for a walk on the beach would have given us a stress reliever as well.

If you’re spending money on stuff that you don’t value, you’re simply wasting it. So, time to add up all of your expenses and see what’s going on. Whether you feel a pinch in your cash flow or not, this is a good exercise to go through on a periodic basis.

Action: Track everything you spend money on over the course of a month. See how it aligns to your expected expenses and make changes as necessary.

Recap

Figure out what your income is – for real – and how much of it you’re actually bringing home or automatically saving.

Figure out what your ideal expense allocations look like. What do you value?

Determine if your actual spending aligns with your ideal situation. Where are you missing the mark? Are you spending money on things you don’t actually value?

Being aware of your situation will help you make changes to it more easily. If you’re spending more than you earn but have no idea what you’re buying, tracking how much is coming in and going out is the first step.

I prefer doing these things by hand. There are a ton of great tools out there that will help you categorize and scrutinize your spending and your income, but I find that poring over the details in a spreadsheet helps me understand it more.

Once you’ve got the hang of it, using those tools is fine. But mastering the basics on my own has helped me be more cognizant of what’s going on.

Next Week: Destroy Your Debt

Question:

When was the last time you took a hard look at your expenses? How about at your paycheck?

Bonus Question:

What should I add to this Financial Friday post to help round it out? Any recommendations on future posts, or things I could expand on, omit, etc.? Do you like the format? I’m looking for feedback!

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6 Comments

  1. I like the idea of “Financial Fridays”. Going through the Income and Expenses line by line, a clear picture emerges. Where did the money come from? This is the easy part, as many of us don’t have many income sources besides paycheck. The hard part is: where did the money go? This may take more time to figure out, but is absolutely worth the effort. This is a great way to track money.

    1. Thanks Helen! I think the “where did this money go?” question is one that people tend to have no idea about, then they have a crystal clear picture, and then it fades into a bit of a fog over time because you get comfortable with that income – expenses gap. That’s fine if it works for you, but going through the effort of really scrutinizing your spending every now and then can help get back to that crystal clear, and make the fogginess less impactful.

  2. This is something we need to get better about doing! I’m numbers-phobic and the worlds’ biggest procrastinator so… at least I *finally* got an account w Personal Capital so now I can see real numbers and pretty graphs.

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