Many people wonder how to get started on their journey to financial freedom. If you’re here you have already considered budgeting, have probably tried it a few times, and are stuck on how to make it work for you. Unlike most money management advice, this is not a detailed analysis of your spending habits, nor encouragement to change them. So how do you start your financial freedom journey without budgeting? You start tracking all of your income and expenses. Understanding how much money comes in and goes out is the cornerstone to getting control of your finances.
Say you make $70,000 a year. You pay your bills, save a little for retirement, and try to have some fun sometimes. Yet somehow you feel like you are getting nowhere. You don’t know if you’re saving enough or if you can buy a home, a car, or a much-needed vacation. This is because you don’t actually make $70,000 a year. Your take home pay is much different than your gross income. And nowhere is there a total of how much you actually make in a year aside from each individual check you collect. So how can you make good financial decisions if you don’t know what you’re making them from? Where’s the big picture?
This is the exact problem I faced when I was trying to figure out if I could afford to buy a house. I had no idea what my big picture financial state was, only a feeling that I could probably afford it. But then of course I couldn’t answer the next question. How much could I afford? I was a single girl, fresh out of college and I didn’t want a mortgage that consumed my entire income. I wanted to have a home and a life. So this is what I did to determine how much I could comfortably afford.
Income and Expense Tracking Spreadsheet
Enter the income and expense tracking spreadsheet. Yes, spreadsheet. Every average-Joe’s bane and every number-lover’s dream. Stay with me here. This is really basic and will provide you with that big picture view needed to calm your financial uncertainty.
The primary intent of the spreadsheet is to list out all of the expenses you incur throughout the year and simply enter the amount. The same goes for sources of income. Even paltry interest accumulating in a savings account somewhere. The whole point is to have a holistic view of everything coming in and everything going out.
When entered, you will have a single, comprehensive view of your financial situation, sans cash. I left out cash because I rarely spend cash. If you are a big cash spender, then you’ll want to add a row to record your monthly cash spend. The bottommost row, net income, will show you whether or not your month was profitable and by how much. Green is positive, red is negative. Meanwhile, each row is totaled so you can see how much each expense or income source accumulates throughout the year.
You want each month to be green because that means you’re earning more than you’re spending. This is the foundation of getting your financial house in order.
How I Got Control of My Finances
Keep in mind that this spreadsheet is meant to provide a big picture view, not a granular analysis of your spending habits. When I created my initial spreadsheet to determine if I could afford a house, I also wanted to know if I could afford to invest. Here’s what my initial spreadsheet looked like:
From here I could draw a couple important conclusions. First, I could afford to buy a house with a total monthly payment of about $1500, especially if I removed rent from my expenses. Second, I was going to have some money leftover to begin investing, which was another goal of mine. In the end I decided to buy a home with a total monthly payment of about $1000 so that I could avoid self-inflicted financial stress, start investing and enjoy being 25. Meanwhile the bank happily told me I could afford a home 3x that amount. I’m glad I ran my own numbers since I couldn’t trust the experts!
So how can you get the income and expense tracking spreadsheet? Enter your email address below and you can immediately download the spreadsheet.
Income and Expense Tracking Spreadsheet Tips
- There is some sample data in the January and February months to give you an idea of how to begin filling it out. When you understand how to enter your amounts, delete these pre-filled values.
- Some cells are white and some are gray. The gray cells indicate I do not expect to have that particular expense or income that month. For example, I pay for home and car insurance annually instead of monthly. You may need to make some adjustments based on your needs.
- Be sure to enter your expenses as a negative number (beginning with a minus) and your income sources as positive.
- Duplicate the spreadsheet into a new tab for each year. This will let you see how you’re trending over a long period of time. A good rule of thumb is to keep your expenses set even if your income grows. This spreadsheet will provide a view of how well you’re accomplishing such a goal.
- Don’t underestimate the value of adding comments. When revisiting this months or even years later it will be helpful to have comments when amounts are out of the ordinary.
- You may notice some expenses, such as my cell phone bill, are not listed. This is because I pay for my cell phone bill with my credit card. Since I already have a row for my credit card expenses, I don’t want to double count this amount.
- Prepare for a weird sense of satisfaction when filling out your spreadsheet each month. It’s oddly fulfilling to feel such control over your financial situation for a change.
If you would like a more in depth tutorial on how to use the Income and Expense Tracking Spreadsheet, check out this YouTube video.
Getting Control of Your Finances
Perhaps the best part about starting to track your income and expenses to get control of your finances is that it can be done retroactively. So just because you have not done this before doesn’t mean you need to wait months for your financial picture to come into focus. Pull up those old bank statements and start plugging away.
Tracking your income and expenses will provide a clear picture of where you are financially, and it will be the foundation of your future decisions. Use this as a starting point, and you can make future financial decisions with confidence.