Happy Autumnal Equinox!
Fall is officially here! It’s the perfect time to assess where you are financially. I personally like to check in with my finances every three months to make sure I’m still on track for the year. I’ll be posting my quarterly update after September ends.
I like to track:
- Income
- Investments
- Spending by category
- Percentage of income spent, saved, & invested
- Net worth
- Percentage accomplished for my FIRE goal
Prior to me updating you on my situation, I want to teach you how to figure all of this out for your own situation.
1. Gather the following information:
- Total income from all sources (I like to use gross income)
- Total debts (credit cards, student loans, mortgage, lines of credit, etc.)
- Total spending (you can use your bank statements and credit card statements for this; if you mainly use cash I suggest you add up every ATM withdrawal and use that; it won’t be very accurate to break it down by category but you can at least know how much you’re spending in cash)
I don’t personally like using cash because it makes tracking what I spend much more difficult. I understand some people like using cash for privacy reasons or perhaps convenience? I don’t understand the convenience part since tapping a card or phone is so much more convenient than keeping track of cash, but to each their own.
Tangent: I was traveling once when I was very young and I had a little coin purse with about $300 in it. It was Sunday so there were many merchants from out of town that had set up their vending stalls in the town plaza. My cousin and I went to check out the various stalls and at one of them I put my coin purse down on the table….and then walked away. Needless to say that when I realized I’d left it and returned, it was long gone. I will never carry that much cash again. Now when I travel to a country that is mainly cash-based, I withdraw about $100 USD and then when I’ve spent it I withdraw another $100. $300 might not seem like a lot to some people, but I was a child still and I learned a valuable lesson: cash once lost, is gone forever. Credit cards once lost, on the other hand: are cancelled and quickly replaced! I think I have a $20 in my wallet, but for the life of me I cannot recall how it got there. If I ever need to spend it, who knows when another one will find it’s way in there, haha.
2. Now you’re going to take your information and sort it.
Income: is probably easy since you have pay stubs. Although if you’re a freelancer you will have to start keeping good records of all income earned as well as any and all expenses during the course of your work. This will make tax time easy for you. It will also help you see if your freelancing is lucrative for you or if you should start charging more.
Debts: take each credit card statement and find the total balance. Take each student loan statement and do the same. You’ll do the same with any other debt you have.
Spending: You should download the transactions for the period you want to review as a spreadsheet to make it easier to manipulate the data. Then you’ll want to add a category to each transaction, most credit cards already do this for you so if you like the categories you don’t have to do anything extra. Once everything is categorized, find the total for each category.
3. Calculations
Net worth: Your net worth is the sum of your assets minus your liabilities. It’s helpful to track over the long term so you can see how your financial situation is improving. It is not uncommon to start at a negative number rather than 0, so don’t be discouraged if that’s what yours is like. (Mine was -53k when I first saw it on Mint)
Investments: This is important to people like me who don’t want to work because often times people’s net worth isn’t a true reflection of what they have to live off of after retirement. This is because often a large part of someone’s net worth can be held as equity in their home. The equity isn’t useful to me because the only way to access it is by selling the house. Or doing a cash-out refinance, which would then increase my monthly payment. So even though I will track my net worth, it’s not nearly as important to me as my investment figure.
Percentages: To find the percentage of your income that you spent divide the amount you spent by the income you earned.
Example: You earned $1,000, spent $800, saved $150, and invested $50.
- Spent: 800 / 1000 = .8 or 80%
- Saved: 150 / 1000 = .15 or 15%
- Invested: 50 / 1000 = .05 or 5%
How often should you be tracking this?
I originally budgeted on a monthly basis because it makes sense since all the bills are generally due once a month. I really like this way of tracking, but it was a lot easier to do monthly when I used apps to show me everything at once and calculate it all for me. Now that I don’t use apps and calculate it all manually, I don’t really feel like figuring it out every month. Plus, I already know my spending habits, so it’s not a surprise to me how much I spend on a monthly basis. If you’re new to budgeting and tracking your info, I definitely recommend doing it monthly until you know that your spending is more or less the same every month.
What’s next?
Now that you have your financial picture, you should decide how much you need to start saving for the upcoming holiday spending. By planning ahead you can avoid overspending on holiday purchases.
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