The next step in getting control of your money is to use an income and expenses tracker. This is where you will record every single deposit or withdrawal from each account, including cash spending, bank accounts, savings and credit cards.

You will need to record which account the transaction is from, the date of transaction, where the money went to or came from (payee/payer), what category the transaction is (E.g. Utilities Bill, Leisure, Groceries, Mortgage), the amount – exactly, and the current balance. It doesn’t matter where this is recorded; you could use any note pad. There are also bookkeeping pads you could use which are available from office suppliers. You could also use an Excel spreadsheet.

If you are serious about financial freedom, you could also consider one of the many home finances software tools or on-line sites. I use Microsoft Money and recommend it.

The aim of this habit is to firstly to throw light on where your money is going. If you do decide to use the software or on-line tools, make sure there is a reports function which can give you a monthly income and expenses report. There are usually some real surprises when you start doing this.

“What – we spent how much on take-away food?”

From here, you can then focus on the real money drains. Secondly, at the end of the month you can review the transactions to see if you are overspending or are actually starting to create excess cash.

Record All Cash Transactions

Buy yourself a little pocket note book and start to record every single cash transaction; Yes that means every time you spend some cash, write it in your note pad. If you think this is too anal, I urge you to reconsider. This will not only shed light on the hidden cash pits but also you will start to change your spending habits. You will begin to question your purchases. “Will this item really be worth spending money on?”.

Weekly Financial Review

Now I’m not saying that you should fill in your Income and expenses tracker every day, weekly should be fine. It will take no more than 30 minutes normally. To form the habit, do it at the same time every week (I do mine on Saturday morning). Record all the transactions for all accounts in whatever tracking system you have.
Go through your current account statement and record the transactions in your system. Go through your credit card statements and do the same. Next go through your note pad and record each cash transaction you have made in your system. If you do this religiously every week, this will be invaluable to you, as you will start to build up a picture of your spending habits.

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We have now arrived at the final step of the process for achieving financial independence: Invest for Income.
All of your income, savings and investments, so far, will be funneled into a system that will invest in property. You will earn rental profits, after you have paid your expenses (see Step Eleven: Invest in Property). It will be tempting to go out and spend this income, as if it were a pay-rise, however, you’re not going to do that. You will invest for income.

The Goose that Lays Golden Eggs

If you read enough around the area of financial independence, you will have undoubtedly have come across the term Passive Income. All investments will need at least some attention, even the most passive and secure – cash. The money you will finally get to live off, when you reach financial independence, should be as secure as possible. With risk, comes reward, particularly for investing for growth. For income, think security. Think of this as your goose that lays golden eggs. If you feed and look after your goose, she will reward you with a lifetime of golden eggs. Your system of investments: First Security and Growth, then Property, will provide you with more and more geese, laying more and more golden eggs.
Eventually you can live off this income without touching your earned or business income. You will then be financially independent.

Which Vehicles to Invest for Income

You could buy Managed Funds, similar to those for security and growth. Again these can be equity funds, Index trackers, Investment Trusts, which could be in a Tax efficient vehicle such as an ISA (UK). These funds could be invested into Equities, bonds and cash. Consult your Independent Financial Adviser before investing. They should help you with what is termed asset allocation, this means what proportion of equities, bonds and cash these funds hold.

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On the first Saturday of each month (or whatever day you do your Weekly Review, I do a monthly financial review. It normally takes me another 30 minutes or so. This is where I record my Cash-flow Statement into an A4 notebook. I strongly recommend you start to do the same; I now have monthly Cash-flow Statements going back to 2006.
The purpose of this is extremely important; this is where you will see if you are getting wealthier or poorer. Put the previous month & year at the top of the first page, then divide the page into four equal segments. In the top left write – Income.

Top left is – Income.

Top right is – Expenses

Bottom left – Assets

Bottom Right – Liabilities.

1. Income

In this segment, record all income for the month, by total for each category for example Salary and Wages, Bank Interest, Dividends, Refunds, Gifts. If you are using a software or on-line tool, this will total everything up for you and take the donkey-work out of it.

2 .Expenses

In this segment record all expenses you have incurred, again by total for each category for example Mortgage, Groceries, Child Care, Leisure, Transportation etc.

3. Assets

Record every asset you have as of the last day of the month for example Bank and Cash, Investments, Shares, Pension amount, Property Investment etc. You will have done this already, to establish what state your finances are in. Now you will repeat it every month. There is no need to list all of your possessions again, unless you have bought or sold a major item; Just use the figure from the original exercise.

4. Liabilities

In this segment record each liability for example Credit Card, Loans, Mortgage From this you will be able to work out the following indicators of your wealth.
In the space below the table record the following indicators:

5. Net worth

This is simply a sum of your Assets minus any Liabilities. Your aim is to get this number into the positive and increase it.

6. Real net worth

This is Your Net worth not including your house and mortgage (as you have to live somewhere).

7. Current net worth

This is Current Assets minus current liabilities. As I said before, current Assets are things like bank and cash or any investments that you could turn into cash quickly. Current Liabilities would be things that are due soon like credit cards, but not long-term debt like mortgages and loans.

Control Your Expenses as Your Income Increases

If you perform the exercises above religiously every week and month you will begin to get a real handle on your money. As your income increases you will be able to ensure that your expenses don’t spiral as well. You will also be able to budget better and spend only what you intend.
Okay I admit it may take you years to achieve financial freedom, but as my Mum says,
“Those years are going to pass anyway, so you might as well make a start.”

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