How To Organize Your Income And Expenses

My Taxable Investment Account


Tracking every dollar you spend, save, and make, sounds like a lot of work but here’s the thing – it doesn’t have to be. I used to be surprised when I found out a friend or family member didn’t track the money they had coming in and leaving, I mean come on, it’s so easy!

And because they didn’t they had no idea how much they spent in a month or in a year. They had no way to tell what their take home pay was for a year. No clue what they spent on utilities, their car, or new socks (well, I don’t even know that one). Flying blind.

So let’s do this.

What will we accomplish? You’ll be able to highlight your spending habits, target cuts where appropriate, and better plan for future spending. If you’re hesitant, just go for it! You’ll be glad you did.

Step 1 – Sharpen Your Pencil

If you’re not tracking any of your everyday dollars then you have no idea on where you can make improvements and you’re not conscious of your money. So, first off, we need a baseline.

Get a writing utensil and a notebook and start tracking every dollar you spend and every dollar you earn, down to the cent. If you have a smartphone, use something like Pennies. Just make sure to capture everything: the coffee and muffin in the morning, the lunchtime burrito at Chipotle, the two beers at happy hour, the movie Saturday night, new spark plugs for your car, your paycheck on Friday, and the $20 you made selling those unused toys on Craigslist.

At the end of the month tally up your expenses and tally up your income. What do you think? Warning: the results may shock you! You may want to break your expenses down into different categories or even subcategories. I think you should feel free to make these categories unique to you and your situation:

  1. Car
  2. Entertainment
  3. Food
  4. Health
  5. Household
  6. Shelter
  7. Utilities

Step 2 – Track And Categorize

I have tracked my expenses and income since 2006 using a spreadsheet with 3 columns. First column is what I’m tracking along with the date. The second column is the dollar amount of that item. Third column is my savings account total and either a deduction or addition of that item depending if it’s an expense or income, respectively.

This is brain dead simple, easy for me to use and fast for me to use. For example, here is what I track every single month:

8/1 mortgage/condo fee
8/1 brokerage (pay myself first)
8/1 cash (the $100 a week I give myself for food and entertainment, tallied for the month)
8/1 utility bill
8/3 paycheck
8/17 paycheck
8/23 credit card bill
8/31 paycheck

I can build this out for a whole year which takes minimal time and then I simply plug the numbers in every month. Every once in a while I will log into my online banking and crosscheck that the savings account amount in my spreadsheet coincides with the actual amount in my savings account. Surprisingly, it is always spot on.

You may wonder what goes on my credit card. It’s things like gas, my Netflix subscription, travel related items like hotels and airfare, cat food, donations and clothes when I buy them. Typically, not much.

Do what works best for you. If it’s simpler than what I do great. If you use more categorizes, all the better.

Step 3.5 Add In Your Investments

At the end of every month I add up my expenses – mortgage/condo fee plus cash plus utilities plus the credit card bill – and I add up my income and I plug those numbers into another spreadsheet. This spreadsheet simply tracks my per month expenses and income and I have a third column with what my taxable investment account is worth. Based on the value of this investment account, it automatically calculates how much income my investments could throw off at either a 5% or 10% return. That looks like this:

 ExpensesIncomeCapitalCapital Income 5%Capital Income 10%
Aug 2012
Sep 2012
Oct 2012

Step 4 – Graph It

Pictures are worth a thousand words! I got this idea from one of my favorite books“Your Money Or Your Life”. Once you start tracking your income and expenses you can plot the figures every month. Add in what you think you can reasonably make in returns off your taxable investment account – somewhere between 5% and 10% – and you will be able to see yourself getting closer and closer to the crossover point: this is the most important point for early retirement because it is when your monthly investment income crosses above your monthly expenses. When this point happens is when you can seriously consider retiring because you are officially financially independent! No more income is needed from a job.


Mr. Everyday Dollar Tracking The Crossover Point


Plotting this is an exciting way to realize the dream of financial independence because it’s visual. It drives home the point that you can, in fact, retire early. And the graph easily shows that these things help accelerate it: making more money so you can invest more (income), spending less money to make the crossover point lower (expenses) and investing what you save to reach the crossover point faster.

I started getting serious in late 2010 about retiring early, specifically at age 42, which is 9 years from now. I made changes where I could like getting rid of TV,  brewing coffee at home, and brown bagging it for lunch. I can see from the graph that in early 2011 my expenses started to decrease and since then I have never had a month where my expenses exceeded my income. I also started to ratchet up how much money I was committing to my brokerage account in order to accelerate my nest egg, therefore decreasing the time it will take to reach the crossover point.

I have yet to have a month where my expenses fall in between the 5%-10% investment income line – the crossover point – but I am damn close. Last month I was short only a couple hundred dollars!

Once my expense line consistently starts to fall squarely in between that 5%-10% investment income line is when I will start to seriously plan for early retirement.

Other Options For Tracking

You can try using I did for awhile, along with my spreadsheet. I didn’t care for Mint because I found it too cumbersome. I still recommend it but it just wasn’t for me. Do what works best for you, just be sure to do something.

A Final Note On Budgeting

Budgets don’t work. I don’t believe in them mostly because people can’t stick to them. It’s much like dieting. How many people do you know that are always going on new diets, trying this and that, and never succeeding? Reaching financial independence, like dieting, is about being conscious, making changes slowly, setting yourself up for success with measurable and attainable goals and making this your lifestyle.

Personally, I am a frugal mister and I don’t spend money on frivolous things. That’s why I don’t feel the need to budget. The closest thing to budgeting that I do is to give myself $100 a week for food and entertainment. This is for groceries, eating out, going to a bar for drinks, or seeing a movie. When that $100 is gone then I have to work with what I have, which might mean saying “no” to going out and instead inviting people over. Or making do with what’s in my pantry and refrigerator – and if that means eating buttered noodles for a couple days then them’s the breaks.

If you believe you need budgeting or to reduce your spending I like the idea of using the following tactic. Let’s say after a few months of tracking your dollars you now have a pretty good handle on how much you’re spending. And you’re shocked to find that you’re spending hundreds of dollars on clothes. Here’s what you do: you give yourself $50 a month for clothes and put that cash in an envelope with the word clothes written on it. You can do this for all your expenses. Have an entertainment, food and household envelope each with the amount of dollars in it that you want to spend every month. When the money is gone from the envelope, that’s it. And no cheating!