My last blog talked about my vacation memories and the process I go through to edit and store the highlights of a trip. Most of my memories are in the form of photos, but some very special memories are videos. On our vacation this summer, my partner took part in a bluegrass jam session in Colorado. It was my first experience attending a jam session and, although bluegrass is not high on my list of preferred musical genres, I absolutely loved both the music and the experience. It opened my eyes to something new and isn’t that what life is all about?

What is so fun about videos is that they cover a period of time, an entire song at the jam, for example. It gives me more information than a photo. It reflects the expression, the musical ability, and the unique sound that each musician brought to the piece and how those sounds melded together to create a lasting memory of a beautiful song. The video reflects not only information about each individual musician, but also the beauty of the music they created together.

The financial selfie that is comparable to a video is an income and expense statement. (My last blog covered the selfie photo equivalent, a net worth statement.)

Income and Expense Statements

Income and expense statements cover a period of time. I like to record my data on an Excel spreadsheet that gives me a visual of an entire year. I created some categories that are unique to me—income and expenses for my book, for example—so that I can track what makes sense for me and my lifestyle. I add some categories from time to time and purge some if they have not been used for a while.

If you prefer, there are many income and expense tracking programs online. Some even link to your bank, investment, credit card, etc. accounts and transfer information automatically. It is not necessary to start from scratch. Intuit’s Mint, Personal Capital, Tiller, YNAB (You Need a Budget), and Quicken are top-rated. Some are not available for Windows, however, and only Mint and Personal Capital from the above list are free.

I admit that I did not do a good job of tracking my expenses until mid-life. I wish I had started earlier. I believe part of my resistance was a rebellion against the keep-track-of-every-penny mindset of my father. I knew that I did not want to be that exact and I found that I really do not need to be. I lump some things together and do not list specific purchases in my “cash” category, for example.

As I shared in my blog, Mid-Life Panic, once I started tracking my expense, I found that there were categories in which I was spending more than I thought. I found my weaknesses (which I still need to monitor closely) and adjusted so that I was on track for my planned retirement. If you are falling further and further in debt, there are only two options: increase your income or decrease your expenses. Those two options are the same for a gap in retirement savings. An income and expense statement will help you make appropriate decisions to get on track.

Sample Income and Expense Statement

This is a sample statement, but as I mentioned there are online options. If you use a spreadsheet or create your own, make the categories relevant for you and your family. If you have expenses for your kids’ education, for example, make a category or categories for that. I break out “groceries” and “dining out” so I can better monitor the latter. Break down expenses into the pieces that will give you a clear video. Download your own Income and Expense Statement.

   January  February  March
     Wages/Salary                 –                   –                   –
     Spouse/Partner Wage/Salary                 –                   –                   –  
     Pensions/Social Security                 –                   –                   –  
     Dividends                 –                   –                   –  
     Interest                 –                   –                   –  
     Other                 –                   –                   –  
              TOTAL INCOME      
   January  February  March
     Mortgage/Rent                 –                   –                   –  
     Electric/Gas/Water/Sewer                 –                   –                   –  
     TV/Phone                 –                   –                   –  
     Car Payment                 –                   –                   –  
     Credit Cards                 –                   –                   –  
     Health                 –                   –                   –  
     Home/Rental                 –                   –                   –  
     Auto                 –                   –                   –  
SAVING/INVESTING                 –                   –                   –  
     Groceries                 –                   –                   –  
     House/Cleaning Products                 –                   –                   –  
     Fuel                 –                   –                   –  
     Repair/Maintenance                 –                   –                   –  
     License                 –                   –                   –  
     Doctors                 –                   –                   –  
     Prescriptions                 –                   –                   –  
     Clothes/Shoes                 –                   –                   –  
     Hair/Nails                 –                   –                   –  
ENTERTAINMENT                 –                   –                   –  
GIFTS                 –                   –                   –  
DONATIONS                 –                   –                   –  
        TOTAL EXPENSES      

If you continue to track over time, you may find a few surprises! I found the two expense categories I must watch closely are personal expenses and gifts.

Why is an income and expense statement important?

An income and expense statement is another financial tool. Not only does it provide a video of your financial life, but it can also help you create a budget for the future. Especially if you find that your expenses are greater than your income, something needs to change. You can then lay out a plan starting next month, based on expense categories you want and need to cut. In this case, it is goal oriented and can help you reach your financial goals. That is especially helpful if you are a young professional.

An income and expense statement is often used when determining spousal support and/or child support. Both parties will typically need to complete statements. The income and expense statement will help you and your attorney determine where your money is coming from and where it is going. An income and expense statement may also be requested when applying for credit.

Even though the musicians at the bluegrass jam each contributed individually, it was the combination of the sounds that made beautiful music. The individual pieces of your financial statement have an effect on your financial health and an income and expense statement can help to ensure they work together to create a beautiful financial future.

~Bev Bowers, CFP®


Legal Notice: This document is intended to be informational only. Beverly Bowers does not render legal, accounting, or tax advice. Please consult the appropriate legal, accounting, or tax advisor if you require such advice. The opinions expressed in this report are subject to change without notice. The information in this report is from sources believed to be reliable but are not guaranteed to be accurate or complete. All publication rights reserved. Use of this material is subject to the Copyright restrictions described on BevBowers.com.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark and the CERTIFIED FINANCIAL PLANNER™ certification mark in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.