Having an awareness around and tracking your income and expenses is one of the foundational tools in creating intention with your wealth. Before you are able to budget, commit to a financial plan, or evaluate if financial goals are achievable – you must first understand your cash flow.
Cash flow is the driving force of our financial wellness. What is coming in and what is going out. It will impact your ability to pay down debt, invest for your future, live life to the fullest in the present, etc. You get it. It’s important.
Understanding this foundational tool in wealth building will help you start identifying areas for improvement but will also help you discover how best to make your financial dreams and goals possible.
I completely understand the idea of tracking your income and expenses sounds less than exciting. But instead of thinking about the aimless data entry, try to envision the results and the outcomes you are seeking as a result of tracking your income and expenses. What is your why behind it?
Let’s go over a few of those why’s together…
Why Should You be Tracking Your Income and Expenses
1. To Better Understand Where your money is coming from and where it is going
This seems like a very basic reason but the majority of individuals do not have a grasp on what their money is being spent on. So in other words, there is minimal intention and minimal control. Without either of those things, it will be made very difficult to achieve your short term and long term financial goals.
Understanding these basics of what is coming in and what is going out will allow you to become more mindful of your spending in an effort to ensure your money is going exactly where you want it do – with more thought and intention.
2. To be able to create a reasonable & sustainable budget
Tracking your income and expenses will allow you to create an appropriate budget specific to you. You must first understand how much money you are working with and what it is currently being spent on. Without those numbers, it will be very challenging for you to create a budget that is sustainable for you going forward. Spend a month or two tracking your current expenses in order to create a budget that makes sense for you and that will be both effective and flexible.
3. To hold yourself accountable for your financial choices
I am a big advocate for creating financial goals and creating a budget or roadmap in order to achieve those goals. But without taking the time to track your numbers, how will you hold yourself accountable? It will be imperative for you to track your income and expenses in order to identify your progress and to give you the transparency you need to see if you are on the right track.
4. You are more likely to catch fraudulent activity or false charges on your accounts
When you take the time to review your expenses, you will be much more prone to identify errors, fraudulent activity and false charges on your accounts and will be able to respond in a more timely manner to better protect your identity and your assets.
5. You will become more aware of increases in pricing for utilities and bills
Most of us pay our utilities and bills through an automated system. We set up our bank account and Voila – each month our payment is made. Some of us look at the bill, some of us don’t. But how will we ever identify if prices have increased or why your electric bill went up by 50%? There must be some mistake. Keeping informed in this area could save you tens of hundreds of dollars a year by asking the right questions, understanding your usage and the reasonableness of your bills.
6. To be able to better establish concrete, achievable goals and create a roadmap for them
In order to identify if your goals are achievable or to be able to create a roadmap to achieve those goals – you must first understand your current financial situation. Go through the details, identify areas for improvement, create a plan to reach your financial goals and execute. But first, get a handle on your starting point.
7. To become both financially aware, organized and in control
There is something to be said for having a financially organized life. Understanding your assets, your income, your expenses. You are in control. You know the numbers. You make the decisions – informed decisions, with an understanding of how those decisions impact your financial wellness going forward.
FinPowered Female’s New Income, Expense, Net Worth and Budget Template Coming Soon!
I have created a Cash Flow Tracker, Budget and Annual Net Worth Summary Template and it will be available for sale in the coming weeks prior to January 1st. It will be an incredible tool for you to understand your spending, your saving and your earning numbers and allow you to better plan for your bright future ahead!
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