Thus far, we have been talking about how to track expenses. So, you now have created a complete calculation of your total expenses for the month. The shock of how much money you have been blowing out the door will subside. And wait! You have income, too!
Recommended Reading
Robert T. Kiyosaki , Rich Dad Poor Dad, 25th Anniversary edition (April 5, 2022).
Now create the income side of the picture for the month you are tracking. For each month, open every type of financial document that you received that shows income. On the income side will be, for example, pay stubs, commission stubs, Social Security payments, direct deposit statements, cash receipts, etc. If you have a business, you will have accounts receivable in the form of checks from clients, direct deposits, paypal payments, etc. The key here is that you want to know exactly how much income you are receiving every month. If you are being paid cash, make sure to include the cash payments you received.
Right now, as you are creating the income statement, use gross figures, rather than net figures from your pay stubs. Again, your pay stub will show the taxes that are taken out of your check. You should have put that tax information in your expense document.
Now, total up the gross, before taxes, monthly income, from all income sources and add all final totals together to get a final monthly income total. Now, compare the total income against the total expenses. Congratulations! You have now completed an Income and Expense Statement!
If your income generously exceeds the expenses, then you are living within your means. If the expenses exceed the income, you are living beyond your means. If the income and expense figures are roughly equal, you are living month to month.
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You have now identified all your expenses and have identified all your income. From this document, you will begin the course of becoming wealthy. Why? Because it gives you a crystal clear picture of exactly where you are financially. This one document exposes every nuance of your current financial situation.
It may be painful to do and you may feel like a poor person at first when you see how much you spend and how little your income seems to be. Don’t despair! This is only the beginning of your path to becoming wealthy. If you follow these money fundamental steps of wealth, one day you will look forward to doing your Income and Expense Statement.
One day you will smile with satisfaction as the income side begins to grow far larger than the expense side. Hard to believe but, one day you will be a cool weirdo who likes gloating over their Income and Expense Statement.
This exercise must be completed for (1) the current month and (2) each month forward, until you are absolutely clear, as to what your income and expenses are for each month. Just begin with the current month and track your expenses for every month going forward.
Commit to this exercise for a period of at least six months. One year is even better. Me, I’m on that trip whenever I nail down a new income source, or I eliminate an expense and want to feel good about myself; that’s how weird you can get! There is no doubt that doing an Income and Expense Statement is a lot of work at the end of every month. But you want to be wealthy, don’t you?
In summary, get organized. Do the Income and Expense Statement every month for a minimum of six months, and preferably one year, to see where all your money is going. The goal is to become aware of your exact financial picture at all times.
You want to know the next Great Step of Wealth, don’t you? Read the next article!
And read the Recommended Reading book listed below. “Rich Dad, Poor Dad” is one of the best books, regarding wealth, ever written. This book introduced me to the idea that you can lean less on your job for income as you develop income streams that come from investments, rather than labor. Rents, royalties, dividends, etc. — all are forms of income that rely on passive income (investment income) rather than active income (labor). This book is written in an engaging way that is easy to understand. A game changer.
Recommended Reading
Robert T. Kiyosaki , Rich Dad Poor Dad, 25th Anniversary edition (April 5, 2022).
Amazon Book Selections:
Three Steps to Quantum Wealth: The Wealth Heiress’ Guide to Financial Freedom by Investing in Cryptocurrencies
The Seven 7 Steps To Wealth Creation Through Real Estate Investing
First Steps to Wealth: A Revolution to Increase Your Income, Improve Your Relationships and Expand Your Influence
The Simple Path to Wealth: Your road map to financial independence and a rich, free life
7 Steps to Wealth: The Vital Difference Between Property and Real Estate
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