Comparing Spending and Income

Now comes the real measure of the state of your finances: figuring out how
your total spending compares to your total household income. You may be in
for a shock. Are you ready?

Gathering the necessary materials
To complete this exercise, you need a pad of paper, a pen or pencil, and a
calculator. You also need the following financial information:

Check registers
Bank statements
Receipts for major purchases not made with a credit card
Credit card account statements
Other expense records for the past 12 months

You also need records of your income for the past 12 months, such as pay
stubs and deposit slips or direct deposit information. If you’re self-employed,
you need your business records.

Your spouse or partner should gather the same information because the goal
of this exercise is to give you as complete a picture as possible of how your
household spending compares to your household income.

Categorizing your expenses
Creating a worksheet modeled after the one in Table 1-1 (at the end of this
section) will help you organize your spending and income information and
make sure that you don’t overlook anything. This worksheet will also come in
handy in blog I, Chapter 3, where we help you build a budget.

Some expenses listed as fixed on the worksheet may actually be periodic
expenses for you. For example, instead of paying your auto insurance every
month, you may pay it every quarter.

After you’ve calculated total annual amounts for each of your debts and for
all your living expenses, enter them on the appropriate worksheet lines.