Financial Consciousness 101: Part 2

In my last post, I wrote about the potential benefits of tracking income and expenditures all the way down to the penny. While this habit is certainly helpful in itself, we might as well fully utilize our thorough recordkeeping. I’d like to explain how I do just that.

At the end of every month, I tally up three totals:

1.) Total Expenses
2.) Total Income
3.) Alternative Income (Total Income – Work Income)

Alternative income includes all incoming cash flows outside of a traditional job; dividends, home business, Forex trading, web-income, embezzlement (just kidding!), etc.

This figure shows how dependent you are upon paid employment. If your work income ended without warning, what portion of your expenses could you cover with other income sources? Clearly, the higher percentage, the better. In this event, most of us would likely still be tapping into savings (hopefully a healthy emergency fund!) to temporarily get by, but alternative income sources would help mitigate the damage.

And of course, if this figure were to surpass your expenses consistently, you could potentially be in a position to leave your job if you wanted. Even if you would have no desire to, it would still be a good feeling to know that you are there solely on your own terms.

I’ve seen enough graphs and charts in my econ classes to last a lifetime, but I still like to make data visual when I can. Using my incredible Microsoft Excel skills, I did the following:

Note- I just made these numbers up. My real spreadsheet only has one entry so far, so it doesn’t look like much yet. Besides, I’d feel like a show-off posting my real income from my student work-study job!

Then I inserted a simple line chart:

The authors of Your Money or Your Life recommend doing this on a physical piece of graph paper and hanging it on your wall. That’d work great too, and it would be motivating to actually see progress on a consistent basis.  But I’ll opt to use my 21st century technology and save some trees.  The Excel file is saved on my desktop, where I can easily refer to it anytime.

The time investment is minimal, and I think it’s well worth it. I don’t know of a much simpler way to observe financial progress over time. Just remember, that which is measured generally improves.