How To Track Your Financial Independence: Series #3
After reading my first post and second post on the basics of financial independence and why you need to achieve it, you should have a good grasp on the concept.
You’ve probably realized that becoming financially independent is something that needs to be a necessity in your life, and hopefully you’ve already started to take action in achieving it!
In this post I’m going to be talking about how to track your financial independence so you can keep focused and work on improving your status every single month.
Tracking Your Financial Independence
Without keeping track of your expenses, income, and passive income, you are going to have a very hard time keeping focused and improving your wealth each month.
Here are 2 different suggestions that you might try to keep track of your financial independence:
1) Go to www.richdad.com and look around for the “cashflow 101 game sheets”. They are made for the game but are perfect for a beginner in keeping track of expenses and income.
I’ve been using these since I started my road to financial independence, and they are a great motivator. I simply put my name at the top, and the previous month (for example, today I just filled out exactly what happened in April).
You can put down what you’re making at your job each month, how much passive income (if any) you currently receive, and what’s in your bank account, stock account, mutual fund, CD’s, etc.
You also fill in all your monthly expenses, including things like credit cards, mortgage payments, what you spend on your children, car payment, school loan, etc.
Then you add everything together and subtract your expenses from your total income to see how much monthly cashflow you have. However don’t mistake monthly cashflow with passive income, because it’s not the same thing.
Becoming financially independent means that your passive income is higher than expenses, not that your monthly cashflow is higher than expenses.
For a beginner this is a great exercise to do each month, but I would recommend doing it with an excel spreadsheet, which is described below.
2. You can also do this using an excel sheet if you don’t feel like spending $10 or so for the cashflow sheets.
Open up a spreadsheet and put the current month in bold letters at the top.
Make 3 different columns – Expenses, Income, and Passive Income.
Then simply go down the rows and list each expense and how much it’s costing you each month.
Do the same for income and how much it’s bringing in each month.
Then again the same for passive income.
At the bottom add up your income and passive income and subtract it from your expenses to see how you stand financially.
You can also divide your passive income by your expenses to see exactly how far along you are. For example, my passive income for last month ended up being $345, and my expenses were $655. Therefore last month I ended up being 52.6% financially independent.
Comparing that to March, my passive income was $286 and my expenses were $706. By reviewing my expenses and figuring out ways to cut them down, I ended up reducing them by $51 per month. Last month I was only 40.5% financially independent so I made major progress in the month of April.
No matter which method you use, please make sure you start today. It’s the first of the month so it’s a perfect time, no excuses. By reviewing your financial status each day and thinking creatively on how to reduce your expenses or increase your passive income, you will gain momentum very quickly in becoming financially independent.
If you have any questions on how to set up an excel sheet, feel free to make a comment and ask. Sometimes they’re a little tricky to figure out so you might need some help.
Your perfect life awaits,
Jeremy
The Rest Of This Series
BlogMarks
Furl
Newsvine
Rojo
Email This to a Friend
If you like this then please subscribe to the 