I'm pretty proud of my current understanding of my finances.
Earlier in the year I started using iBank 5 to aggregate the financial data from all of our bank accounts. It provides a snapshot of our financial situation and while I think that's valuable it's really difficult for me to make financial decisions based on that snapshot.
The problem is that the data is bumpy. I get my biweekly paycheck and my net worth goes up. I pay a bill and my net worth goes down. It's a particular problem because a significant amount of my income is paid yearly. On any given day I can't tell whether I'm in the red or the black.
Therefore, I've been working on a spreadsheet that models when money is earned or expenses are incurred rather than when money moves in and out of our accounts. The view is thus a lot smoother than the iBank view.
After I spent a lot of time thinking about this and experimenting I learned that what I was doing was called the "accrual basis of accounting". Wow, I've learned something new! And it's really cool that what I came to on my own is actually (in a dumbed down and perverted form) what real accountants use. Cool!
So this is what I've done:
I have four main sheets: 1. Reoccuring income and expenses, 2. Taxes, 3. One-off expenses, and 4. Daily log.
The first sheet includes columns for both income and expenses on a yearly, quarterly, monthly, biweekly, and weekly basis. I include anything in which my daily decisions cannot make an impact. For example, even though I could move out of my rental house into something cheaper it's nothing something that I can change day-to-day so I'm going to consider this a reoccuring monthly expense. My paycheck comes every two weeks whether I'm at the office or not. For income I'm including salary, vesting restricted stock, contractual annual bonuses, rental income, and dividend income. I am NOT including my annual merit bonus because I have no idea what it will be or even if I'll get one. For expenses I'm including rent, mortgage payments, insurance payments, averaged utility payments, vehicle registration fees, Amazon Prime membership, etc, etc, all the way down my monthly Spotify bill. I am NOT including anything that I make daily decisions about. For example I am not including groceries.
The second sheet includes my total income from the previous sheet and rows for all of the income taxes I pay or are payed on my behave. There are rows for each of the federal and California income tax brackets, social security tax, and medicare tax. I also have a stupidly simple way of getting the tax calculation to be somewhat closer to reality: I have rows for my standard deduction and personal exemptions. I know that in reality I will be paying a little less in taxes, but for my purposes here I just want something close enough to reality without being too small.
The third sheet is my list of any one-off expenses I might incur on any particular day. These include groceries, gasoline, shit bought from Amazon, iTunes movie purchases, hotels, plane tickets, etc, etc, all the way down to the co-pay at the doctor's office. I just include the date, amount, any notes I can use to later identify this expense, and a column for sales tax paid.
The fourth sheet is this spreadsheet's raison d'etre. There's a row for each day and the columns are filled in from the other sheets. They are: 1. Date, 2. Income (this is my total yearly income divided by 365), 3. Taxes (this is my total yearly taxes divided by 365), 4. Reoccuring Expenses (this is the sum of all of my reoccuring expenses for the year divided by 365), 5. Net Income for the day (this is my income minus taxes and reoccuring expenses), 6. Expenses for the day (This is the money that I have to work with today, that is, everything for a particular day on the One-off Expenses sheet sumed up (I learned how to use the filter function to get this to work)), 7. Daily savings (What I saved today, that is, Net income minus daily expenses), and 8. Net savings (summing up all of the daily savings for all previous days).
I'm sharing this because I'm so proud of myself and this has already been successful at: 1. Keeping me from making irrational decisions about my employement based on perceptions of my daily finances rather than hard numbers and 2. Keeping me from frivolous purchases since I can see the actual impact they will make on my daily savings.
Dividing by 365 is bringing scary numbers that I can't quite grok back down to the reality of today. I can say "Today, this is what I have contributed to my future".
