Chapter 3. Track money coming in

 

A successful budget starts by documenting all incoming sources of cash flow. This process is called tracking because it helps you track money coming in as well as money going out. 

Several months of tracking income and expenditures should provide you enough information to assess your financial health. Tracking helps you see a trend of how income is being spent. It provides you with an analysis of all money coming in and all money going out to help you understand your financial behavior and spending tendencies. Always remember that your gross income is subject to tax and other deductions. On average in the USA, each individual pays about 30% in taxes and other deductions on their gross income. Your net income (take home income) is what your budget is based on, not your gross income.

 

Money coming in regardless of the sources of cash flow include, but are not limited to, the following items:

 

One of the goals of tracking is to account for all money coming in and to differentiate between what is your net income and your borrowed money (debt) including credit card debt, student loan debt and other personal debt. You need to stay mindful of the accumulated debt and always remind yourself that debt has to be repaid with interest. As you review your money coming in, ask yourself these very important questions:

How to

To find answers to your questions, you need to reference concepts of financial literacy, including the concept of “Pay Yourself First” before you pay the rest of your bills. Remember, you are your most important creditor.

Instead of saving a portion of your income in a saving account, you are typically encouraged to acquire commodities and fill your environment with material possessions. If you were to ever need cash, you were appropriately programmed to borrow funds, use credit cards or get loans. This was a sense of false financial security that alienated most people from the concept of saving altogether. Why keep any cash on hand if cash was always available in the form of credit? The concept of pay yourself first puts the individual at the top of a vendor’s list. It is the foundation of building an emergency fund to hedge against the need to acquire debts. Pay yourself first became synonymous with saving. It can be made automatic by splitting the deposit of your paycheck into a saving and a checking account. The amount that you put in your savings is up to your discretion, but a suggested 10% or more of your monthly take home amount should be paid to your saving account and the remaining 90% in a checking account to cover your monthly expenses.

 

Practice

Are you comfortable with the concept of "pay yourself first"? Think of paying it forward and teach someone the concept of saving as you save the environment from the accumulation of unnecessary material possessions!

 

Congratulations! You can move on to Step 4: Track money going out

To review the full module on Budgeting, click here.