Totaling spending and earnings

Add up the numbers in each of the three spending categories in Table 1-1 to
get a subtotal for each category. Then add up the subtotals. The final number
represents the amount you are currently spending each year.

Next, add up all the income you received during the same 12-month period.
Take into account not just your net household income (your take-home pay,
which is gross income minus all deductions including taxes), but also any
other income you or your spouse or partner may receive: government benefits,
investments, royalties, child support or spousal support, income from a
family business, and so on. Record that total on your worksheet.

If you are entitled to child support and/or spousal support but the payments
rarely come, don’t include those amounts when you calculate total annual
income for your household. If it’s unreliable income, you can’t count on it to
help cover your spending.

Calculating your financial bottom line

When you have a total annual income amount and a total annual spending
amount, subtract your spending total from your income total.

If the final number you calculate is negative, you can probably guess what
that means: The amount you are spending is more than your annual household
income. You may be financing your lifestyle by using credit cards and
cash advances, and/or you may be falling behind on some of your obligations.
Furthermore, you may not be paying some of your bills at all, which
means that if you add the amount of those bills into your calculations, you
have an even bigger deficit.

If you ended up with a positive number, your finances may be in better shape
than you think. Or not. If the number is small, you may be just barely staying
ahead. And if your bottom line is positive only because you’re paying
just the minimum due on your credit cards each month or because you’ve
stopped paying some of your debts, you have no cause for celebration. If this
describes your situation, you are treading water, at best, and a financial setback
such as a job loss or expensive illness could be devastating.