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10.1 Getting Your Personal Finances in Order

Assess Your Finances With an Income and Expenditure Statement

Before we can create your budget, we need to track your income and expenditures; in other
words, the amount of money you make versus the amount you spend. We can do this in an
income and expenditure statement, which reflects your finances over a certain period of
time, usually a month or a year. Let’s begin by calculating your expenses for one month.

We start with your income from your employer and then deduct income taxes and Social Secu-
rity taxes to calculate your after-tax income. If we divide that figure by 12, we get your monthly
take-home pay. Then we identify all of your monthly expenditures and track them for 1 month.
Most people are not aware of where their money actually goes; after this exercise you’ll have a
much better idea. You can see Elena Maria’s income and expenditure statement in Table 10.1.
Table 10.1: Elena Maria’s income and expenditure statement for one month

Income (cash inflows) Expenditures (cash outflows)

Gross salary $35,000 Fixed expenses % of after-tax income

Income taxes ($8,000) Rent paid $317 16%
Social Security tax ($2,500) Health insurance premiums $100 5%
After-tax income $24,500 Student loan payments $300 15%

Monthly after-tax income $2,042 Transportation fees $92 4%
Cell phone $50 2%

Internet $58 3%
Total fixed expenses $917
Variable expenses

Utilities $150 7%
Groceries $225 11%

Dining out $120 6%
Medical expenses $25 1%
Clothing $180 9%

Books and school supplies $40 2%
Entertainment $63 3%
Personal care expense $40 2%
Total variable expenses $843

Total expenses $1,760
Cash surplus/deficit $282
Allocation of surplus

Emergency savings $83 4%

Retirement $200 10%

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