Step #1 of 6: Summarize all your monthly income and expenses in detail

By ROBERT K. CUNNINGHAM, Personal Finance Coach/Consultant

RIGHT OUT OF THE GATE:  This blog/website and all its content is designed and produced for information purposes only.  No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made.  The reader assumes any and all risk for strategies which are acted on.

In the previous installment of the new-and-improved, I laid out the six primary steps to accelerating the process toward reaching six figures of net worth in the shortest time that’s reasonable.

So now it’s time to begin dissecting the specifics of each step, starting with No. 1 – SUMMARIZE YOUR INCOME AND EXPENSES.

Although this appears to be a pretty straight-forward task, there’s more to it than just adding up your pay and out-go.  We want to be detailed when we do this, because we will refer back to it over the course of other steps, primarily in the area of attempting to cut wasteful spending.

First, let’s determine our income.  For most millennials, income is limited to a job.  How much are you paid? For our purposes, we want monthly numbers rather than weekly or semi-monthly.  Why?  Because the vast majority of expenses are paid out monthly, and when we put these figures side by side, it’s easiest and most effective if we’re comparing grapefruit to grapefruit.

I will assume that at least some of you may be asking, “but what if I’m paid weekly?”  It’s not important to get your income total right on the nose, as long as it’s close.  If you are paid weekly, for example, you will receive a paycheck four times in eight different months, and five in the other four months per year.  So for the sake of consistency, you can take your weekly numbers and multiply by 4.3.  This will give you an average monthly number over the entire course of a year, and that’s sufficiently accurate for our purposes.

An alternative to dealing with the weekly-pay dilemma is to simply assume just four paychecks per month for budgetary purposes, and in those four months during which you receive a fifth check, you can choose to ratchet up your savings or debt elimination. Treat those like mini-windfalls.

The same principles hold true to being paid every other week – you will occasionally receive a third check, but for the purposes of accurate info, simply multiplying by two will give you the monthly income total needed.

In compiling these numbers, you will need gross pay and net pay, as well as ANY other steady income sources.  If you rent a room in your home to a friend, for example, and he/she pays $300 per month, that is absolutely income that you count towards your monthly total even if you tend to immediately turn around and hand it to your landlord or mortgage company.

We note the gross pay because we want to have a starting point in reviewing the deductions from our pay each check.  You should verify these and understand not only what the deductions are for (taxes, medical, social security, etc.), but be prepared to assure they are correct.  If necessary, get a sit-down with a representative of Human Resources.  It’s also good to know what’s being taken out in taxes, and how your most current W-4 form is filled out so that you can adjust if necessary depending on if you’re receiving too much of a tax refund annually, or worse, you’re paying additional taxes come every April 15.  The latter scenario is uncommon, but certainly possible and avoidable.

Net pay, also commonly referred to  as take-home pay, is the magic number that determines how much spendable income you have available monthly.

With expenses, there are two broad categories — fixed, and discretionary. Fixed expenses are those which are the same, or virtually the same, every month.  Rent or mortgage payments, car payments, cellphone bills, and gym membership fees are examples.  Discretionary expenses are those that change significantly every month, such as food (it’s wise to separate groceries from eating out when compiling these costs), gasoline, utilities, clothing, and entertainment.

You need to separate any and all expenditures into one of these two categories, and by all expenditures I’m referring to everything from rent and car payments to gourmet coffee to your breath mints.  You don’t need a separate line in your summary for LifeSavers, but the mints are part of your grocery bill and should be included in the monthly total you dedicate to Ralphs, Vons, and Stater Bros., etc.

We separate fixed from discretionary because the former are expenses that you cannot easily change or eliminate.  Discretionary spending, on the other hand, is simpler to manipulate for your fiduciary benefit.  It’s pretty difficult to reduce your rent (good luck with that!), but quite doable to choose to walk or bicycle more and, thus, reduce your monthly fuel expense.

To ensure reasonable accuracy for listing your expenses, I suggest using the last three months’ of records – whether an on-line banking summary, credit card transactions summaries, hard-copy bank statements, or a combination of all.  If Christmas season falls during the prior three months (as it does at this particular writing), skip December (or November if you’re a proactive Christmas shopper), and utilize the surrounding three months.  Mark down all your expenses in both categories over this time frame, by month, and then average the three totals for each category to arrive at a fairly reliable monthly average.

Once your totals for income and expenses are laid out, simply compare.  If you are earning more money than you’re spending, it means you have some left-over funds that you should be dedicating toward saving, or debt elimination, or perhaps both.  And, as previously alluded to, you can attempt to decrease discretionary spending to give you even more money to work with each month.

If you’re spending more than you make, knock it off already!  In order to make this entire process beneficial, you have to be willing to cease bad habits… and spending more than you make tops the list. Get rid of all the credit cards in your wallet, at least temporarily, and use only your debit card for purchases, which will prevent you from spending money you don’t have (literally, but not in terms of budgeting – that onus is on you).

Now that you know where you stand in the most basic sense, we can figure out how to begin “paying ourselves first,” and otherwise create wealth-building money habits.  We’ll go into that line of thinking in next week’s post.

Once again, I thank you for reading.

For more specific information on DPWLI and related strategies, please go to, and let them know by any communication you choose that you were referred to that site via 

DISCLOSURE:  If you decide to purchase a product(s) from, I will qualify for an affiliate commission.

Leave a Reply

Your email address will not be published. Required fields are marked *