I’ve espoused the benefits of tracking expenses and all the ways doing so has helped me in cutting costs and getting a better handle of my personal finances. However, I’ve tended to neglect some of the benefits of income tracking. While I tend to believe that tracking expenses is by far and away the more important of the two, this doesn’t mean that tracking income doesn’t have its own benefits.
As a self-employed individual especially, I’ve certainly realized just how important tracking my income can be in helping me maintain a better overall feel for my financial situation.
Consistent and Accurate Totals
Of course one of the main benefits of tracking income is that I have consistent and accurate totals for my various income streams, which come tax time, is quite beneficial. But even before tax time rolls around, having a running total of my year-to-date income totals helps me with tax planning and setting aside properly estimated payment amounts for items like income and self-employment taxes.
Additions to Income
But I don’t just leave my tracking at “regular” sources of income that come with jobs that I conduct on a regular basis and that are employer-paid. I also factor in items outside this realm of regular income. Things like bonds, my IRA, and commodities fluctuate in value, and while not currently taxable (since profits on items like my savings bonds and retirement account are deferred until converted to cash), are a part of my annual income nonetheless, and tracking them makes it easier to manage the next benefit of gauging my income, making comparisons.
I find that making month-over-month and year-over-year comparisons of my various income streams is valuable to my personal finances for several reasons. First off, it allows me to watch and determine how various income streams are performing over time. Secondly, it helps me set goals for changing poor performing income streams, and looking for ways to push income higher.
For example, after reviewing last year’s income performance, I set a goal for this year to increase income by 20 percent over last year’s total.
Additions or Deletions
Through my comparisons and tracking over time, I’m better able to evaluate my various sources of income to determine whether there should be additions, deletions or adjustments. At the end of last year, I determined that there were several sources of income that were underperforming, and thereby not worth the amount of time I was investing in them. I therefore removed these income streams from my tracking portfolio. However, this left some gaps in my income that I could look to fill with new sources, which would also be gauged and evaluated over time
I noticed that several other income streams such as my blog and residual income from certain writing sites were lacking in progress or had even decreased over time. I therefore decided to put a little more effort toward working on these income streams in an attempt to bolster them. As I watch my efforts over time, I can come to a better conclusion as to whether my work has paid off or if these are areas that I should eliminate from my income and income tracking in order to focus my attentions elsewhere.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.