5.2 Assessing Income & Expenses

Once you have gathered your financial documents, the next step is to assess your income and expenses. This will give you a clear picture of your cash flow—how much money is coming in and going out each month. Understanding your cash flow is crucial for making informed financial decisions, setting realistic goals, and creating a budget that aligns with your needs and priorities. For survivors of financial abuse, this step is especially important as it provides the foundation for rebuilding financial independence and stability.

Calculating Your Income

Start by calculating your total monthly income. This includes all sources of income, not just your primary job. Be sure to include any additional income, such as child support, alimony, government benefits, or part-time work. Knowing your total income helps you understand your financial capacity and plan accordingly.

  • Gross Income: The total amount you earn before taxes and other deductions. Gross income provides a clear view of your earning potential and can help you assess whether your current income is sufficient to cover your expenses and financial goals.
    • Example: Sophia’s Calculation – Sophia works a full-time job but also receives child support and occasional freelance income. By calculating her gross income, she was able to see that her combined earnings provided a solid foundation for budgeting and savings.
  • Net Income: The amount you take home after taxes and deductions. This is the actual amount available for you to use each month and is critical for budgeting purposes. Understanding your net income helps you avoid overcommitting to expenses that you cannot afford.
    • Example: James’s Situation – James was surprised to find a significant difference between his gross and net income due to high deductions. By focusing on his net income, James was able to adjust his budget to reflect the true amount of money he had available each month.

Tracking Your Expenses

Next, track your monthly expenses. This includes both fixed expenses, like rent or mortgage payments, and variable expenses, like groceries, utilities, and entertainment. Categorizing your expenses can help you better understand where your money is going and identify areas where you may be able to cut back or reallocate funds.

  • Fixed Expenses: Regular, recurring expenses that are typically the same each month (e.g., rent, car payments, insurance). These expenses are usually non-negotiable and must be accounted for first in your budget.
    • Example: Emily’s Fixed Costs – Emily’s fixed expenses included her rent, car payment, and health insurance. Knowing these were non-negotiable, she ensured they were covered first before allocating money to other areas of her budget.
  • Variable Expenses: Expenses that can fluctuate from month to month (e.g., groceries, transportation, dining out). Tracking variable expenses is key to identifying potential areas for savings and ensuring that your spending aligns with your financial goals.
    • Example: Tom’s Spending Habits – Tom noticed that his dining out expenses varied significantly each month, sometimes putting strain on his budget. By tracking these variable expenses, Tom was able to set a limit on dining out, allowing him to save more consistently.

Additional Considerations

  • Unexpected Income or Expenses: It’s important to account for any irregular income, such as bonuses, gifts, or one-time payments, as well as unexpected expenses like medical bills or car repairs. These can have a significant impact on your cash flow and should be planned for accordingly.
    • Example: Nina’s Emergency Fund – Nina experienced a sudden car breakdown that required expensive repairs. Fortunately, she had tracked her income carefully and set aside part of her variable income into an emergency fund, which covered the unexpected cost without disrupting her budget.
  • Using Budgeting Tools: To make the process easier, consider using budgeting tools or apps that can help you track your income and expenses in real-time. These tools can provide valuable insights into your spending patterns and help you stay on top of your finances.
    • Example: Michael’s Budgeting App – Michael started using a budgeting app that synced with his bank accounts and automatically categorized his expenses. This tool helped him stay organized and gave him a clear view of his financial situation at any given time.

Case Study

Case Study: Lily’s Budgeting Journey
Lily, a survivor of financial abuse, was initially overwhelmed by the task of tracking her income and expenses. Her ex-partner had controlled all the finances, leaving her with little knowledge of her financial situation. After gathering her financial documents, Lily discovered that her income was less than she had assumed, and her expenses were much higher due to unmonitored spending habits. By carefully calculating her net income and tracking her expenses, Lily was able to create a budget that aligned with her new reality. She identified areas where she could cut back, such as reducing her subscription services and dining out less frequently. Over time, this careful monitoring and budgeting allowed Lily to save for an emergency fund and slowly rebuild her financial stability.

Conclusion

Assessing your income and expenses is a crucial step in taking control of your finances. By understanding your cash flow, you can make informed decisions that support your financial goals and help you achieve stability and independence. Whether you’re just starting out or rebuilding after a setback, a clear understanding of your income and expenses is the foundation for financial success.