How to Do a Financial Inventory

Welcome to the second installment in the #newyearnewmoneychallenge series. If you missed the first post where I talked all about money mindset, you can check it out here

Tax season is upon us and soon enough you’ll be getting your W-2s in the mail. Your W-2 is going to tell you exactly how much money you earned in the previous year in total and exactly how much you brought home (net income or take-home pay).

As you look at your W-2 you might initially get excited because you earned a great salary in the previous year. But the very next thought in your mind might be….where did all of that money go???   Believe me, it’s a horrible feeling to not know where your hard-earned dollars went to.   

So today, we’re talking about how to do a Financial Inventory and figure out how much you earn, spend, save/invest, and send out to debt every month. 

Grab your free Financial Inventory Worksheet here  

I suspect that if I polled 50 random people and asked them exactly how much money they spend in their household each month I would get more than a few confused looks…But we’re going to remedy that today.   I’m going to walk you through a few easy steps so that you can figure out exactly how much you owe each month, how much you’re spending, how much earn each month. And the most important thing… how much money do you actually get to keep (i.e. save and invest). 

One very unique characteristic of people that accumulate wealth is that they consistently spend less than what they earn. You might not like the numbers that you come up with but remember the purpose of this exercise is not to kick yourself or blame yourself for mistakes that you might have made in the past, but instead to learn from it and do better moving forward.   I use this tool often with my financial coaching clients and consistently they let me know that this exercise is extremely eye-opening. 

Download your worksheet here to get started

1. Monthly Take Home Pay 

The first number that I recommend starting with is take-home pay or the amount that you are bringing home monthly after you pay your income tax deductions, 401k contributions, and insurance premiums. If you have a spouse and you combine your finances, then calculate this based on the combined household take-home pay. 

2. Monthly Amount Owed

The next number that you should calculate is how much you owe every month. How much money are you sending out of your household to debt payments each month? This number will include any forms of debt that you currently have including a mortgage, car notes, student loans, minimum monthly credit card payments, and any other recurring monthly debts.     Don’t forget to include your mortgage in this number, if you have one. But if you rent, we’ll include that amount elsewhere. 

3. Monthly Spending

Next, let’s determine how much you are spending each month. In this category, you will include all of your other household expenses such as recurring bills such as the internet, utilities, grocery spending, dining out, personal care items, kids piano lessons etc. This number represents all of your other non-debt spending for your household. If you don’t own a home but you rent, this is where you would include your monthly rent payment.  

4. Monthly Savings/Investing

Last but definitely not least, you’re going to figure out how much money you’re keeping each month. Tally up everything that you’re saving each month into savings accounts, emergency funds, and investment accounts. This part might be a little bit depressing because this number might be much smaller in comparison to the other numbers that you calculated.    You might not yet be saving or investing very much because there isn’t much discretionary money left over after making debt payments and household spending.   

But conducting this inventory gives you increased awareness about where your money is going so that you can plug any spending leaks that are slowly eating away at your leftover money. A common spending leak is dining out. Those to-go coffees and drive-thru runs really do add up. Even if you don’t get good numbers after completing this inventory the first time, I hope that it will be eye-opening enough to inspire some changes in behavior. And, then the next time that you complete this inventory in 3 months or 6 months the save and invest category will be higher.

In the next installment of the #newyearnewmoneychallenge, we’ll be talking all about How to Set SMART Financial Goals. 

Do you know how much money you spend and save each month?