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Creating an Income and Expense Tracking Document

Setting Up the Expenses Section
For most people, income doesn't need to be subdivided into categories because it comes from only one source. If you receive income from several sources and want to track each of them, you simply create a line for each in the Income section. If you share your finances with someone else, record his or her income in the same way.

However, detailed expense categories are important for everyone: This action allows you to see more clearly where your money is going, which makes this document very illuminating if you need to tighten your budget.

It's important to put some thought into these categories upfront. If you use money management software, you might have already done this; if so, be consistent and use the same categories in this spreadsheet. If not, you'll create categories now that you can later replicate in Quicken or Money if you choose to use software.

Categorizing Expenses
There are many metaphors and technical terms to describe the process of categorizing and subcategorizing data. Some people picture a set of nesting dolls – the ones that open at the middle to reveal a smaller doll inside. Others picture the branches of a tree, with the trunk representing the entire set, the main limbs as the broad categories, and the smaller branches as the subcategories. Some think of it as resembling an outline or a set of steps. For some, the term concatenation or chart of accounts says it all. Use whatever terminology or mental imagery works for you.

In the spreadsheet, you saw just a few basic expense categories and subcategories. You can have as many levels of subcategorization as you want, but keep in mind that the more detailed your system is, the more work it will be to maintain it and the harder it will be to remember what you were doing if you're away from it for a few days or weeks. Try to choose a level of detail that provides just as much information as you need and no more.

For example, take utility bills. You could use one category for all of them: Have one line labeled Utilities and group all payments for electricity, gas, water, and so on into that single category. Or you could have separate lines for each. Can you think of a reason that you might need to see those figures separately and wouldn't want to pull out the bills to check them? If yes, list them separately; if no, keep it simple and go with the single, general category.

The last section of categories you should include in your expense-tracking document is Purchases. Purchases are distinct from Bills in that the expense occurs when you go out and spend money; it's not a bill representing a financial commitment you've already made. You can include this section if you want to track all of your spending in this spreadsheet, or you can use this sheet just for bills.

Don't worry about making your Expense categories perfect: You can always make changes later. Remember, every good organizing system must have the capacity to change with your needs – you're not wedded to it for life. You can add, delete, or change categories and subcategories whenever you want or need to.

Tip
If you're having trouble deciding which of two things should be the main category and which should be the subcategory, for example Insurance versus Auto Expenses, ask yourself which category is "bigger" to you. Would you make the Auto Insurance file a subset of Auto, or would you make Auto Insurance a subset of Insurance? In other words, would it make more sense to group all insurances together with subcategories of Auto, Health, Life, and Homeowner's, or to group all auto expenses together with subcategories including Insurance and Maintenance? Figure out which is the "bigger" or main category in your mind, and therefore which should be its subcategories.

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More on: Family Finances

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Reproduced from Organize Your Personal Finances in No Time, by Debbie Stanley, by permission of Pearson Education. Copyright © 2005 by Que Publishing. Please visit Amazon to order your own copy.


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